Definition of DCA: An investment strategy designed to reduce volatility in which securities, typically mutual funds, are purchased in fixed dollar amounts at regular intervals, regardless of what direction the market is moving.
This is what a mutual fund salesman keen to promote to you: “By investing a fixed amount at set intervals, the investor buys more shares when the security price is low and less when it is high, theoretically reducing the overall cost of the investment.” Sound Ok? Doesn’t it? Since we do not know the trend where’s the market heads on, this is the most sensible strategy to adopt in order to reduce our risks.
Like my sharing posted in Critical Thinking, many times the things sound reasonable superficially but indeed it’s totally out of box of rationality. Put it this way: say like you want to purchase gasoline for your car, would you wait for the best time, meaning when the price of gasoline declines to buy more? Or you just purchase it in fix interval since the price of gasoline fluctuates? Which strategy is more sensible?
DCA is a strategy that already out of fame in the western investment world. But, this strategy gets a hot response especially in Asian countries. The problem underlying for these countries is whenever there is something from western world, they would accept it blindly and treat it like gold. This not only happens in investment world but in every aspect. Whenever your products or services is endorsed or conducted by westerners, the products or services you provide will sell like a hot cake. There is no wonder one of the western trainer says: “It’s very easy to earn from Asian.” Being Asian, pity huh? Though independence, the slave’s mind of colonialism still persist.
Technorati Tags: Dollar Cost Averaging, DCA
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