Dollar Cost Averaging

December 26th, 2018. 06:06 pm

MPF operates in a way very similar to Dollar Cost Averaging in that scheme members make a monthly contribution during the time of their employment and withdraw the benefits from their MPF accounts after they retire. On the assumption that the value of assets rise in the long term, Dollar Cost Averaging aims to offset the short-term fluctuations of stocks by investing a fixed amount regularly into a particular investment.

 

Take investment in stocks as an example. If you invest at regular intervals a fixed amount in the purchase of a stock, you reduce the effect of the short-term fluctuations of the price of the stock.  In the long run, you will reap quite a respectable level of return.  You will also save time and money in tracking the market in the process.

 

The difference between MPF and the Dollar Cost Averaging in stocks is that the monthly contributions that the scheme members make are used to purchase MPF funds, rather than stocks, which are higher in risks.

 

When the unit price of a MPF fund is high, the same amount of money will buy fewer units of the fund.

When the unit price of is low, the same amount will buy more units of the fund.

 

Because MPF is a kind of long-term investment, taking advantage of the principle of Dollar Cost Averaging will level out the cost of the unit price of the fund, and thereby moderating the influence of market fluctuations on the investment.

For this reason, when scheme members compare the return of funds, they should pay attention on the long-term performance of 3 or 5 years or more.

 

As long as one makes a monthly contribution and regularly reviews the portfolio of the MPF fund that one has chosen, the principle of Dollar Cost Averaging will bring a decent return in the long run.

 

Still confused? We are here to explain!

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