Dollar Cost averaging in today's market

Dear readers and investors,

People often ask me a few things which pertains to investing. One of them being , when is the bottom due or how do you know that it is not going to go down further. Variations of such questions pop up time after time as i am in the wealth management industry. The truth is i really don't know where the bottom and honestly i don't care. All i know is prices are dropping. Things ain't looking that great but it is a great time to pick up bargains.

To try to answer that question, let us look at something simple and logical. Dollar cost averaging. Takes time to make an impact on your portfolio but it sure makes heck of a lot of sense to me especially for investors who are used to committing huge lump sums of cash. Well firstly that's ridiculous because once markets dip, that lump sum falls in value. But dollar cost averaging involves reducing the average cost per unit. This strategy reduces your average cost and helps one to ride out volatility in the portfolio. In an up cycle, the reduced unit cost will work in one's favour.

Financial advisers are often money mis-managers just to quote Chieftain Capital's Mr Greenberg. They are solely driven by commissions and are judged by the amount of revenue they bring to the bank or financial institution. It is a pity that they are not judged by the quality of financial advice that they give and no financial adviser in his right frame of mind will tell you to dollar cost average. Let me paint you an example. John convinces you to buy 100,000 of unit trust/mutual funds instead of putting it into a dollar cost averaging program. A 100,000 dollars worth of unit trust sold would give him 5000 revenue dollars/points for him. Typically he has got to hit a 100000 revenue points in order to get some form of commission. And just to add this chap is running against a time frame of 3 months to hit his targets, sometimes depending on the institution, they have one month to hit their targets. Their job is to far exceed that target for commission is tiered and goes up exponentially at different tiers. So as you can see, when you as a customer tells him that you have 100,000 dollars to invest, no financial advisor in the right frame of mind is going to tell you to invest $5000/$1000 every time the markets dips by 5% or monthly. It just does not make sense for him and that's the problem with the financial industry anywhere around the world. It's ultimately his pocket that he is looking after and not yours. Now, just a comparison, if he did invest $5000 for you over the next 3 months, that would work out to 750 revenue points for him, a tiny drop in a pool of a 100,000 revenue points. Hope that you now see the drastic difference and this post is really meant to answer some of the questions that you folks post to me as readers.

Hence, one thing to learn would be, do not trust your financial adviser more than you trust yourself because the financial services industry is often more incompetent that you think it is. Do your own research and participate in an index fund if you will with a dollar cost averaging strategy to make your money work for you. This is my valued advice for all who are thinking of investing.

Better and better,
Lucas