Dollar Cost Average
Dollar Cost Average is one of the most classical investing strategy. It basically means investing equal monetary amounts regularly and periodically over specific time periods (let’s say RM 500 monthly) in your silver portfolio. By doing so, more silvers are purchased when prices are low and fewer silvers are purchased when prices are high. The point of this is to average the cost per unit of silver investment, giving you an average cost for the silvers purchased over time.
For example, with RM 500 you could usually buy 4 units of 1 oz American Silver Eagle coin. Let’s look at a short duration of 3 months analysis of what could happen using Dollar Cost Average:
|Tenure||Spot Price Condition||Price per Unit of ASE||Unit Bought|
|1st month||Price stagnant||RM 125.00 / unit||4 units|
|2nd month||Price hiked||RM 166. 67 / unit||3 units|
|3rd month||Price dropped drastically||RM 100.00 / unit||5 units|
Let’s take a look what has just happened. By practising Dollar Cost Average, at the end of 3 months, the total unit of silver you own is 12 units. Even with drastic price fluctuation, during this period of time you are still buying silver at an average cost of RM125.00 each oz. This is the power of Dollar Cost Average. The advantage of Dollar Cost Average is, although 2nd month experienced a big price hike, the “price hike” has been averaged by 3th month. The disadvantage of Dollar Cost Average is, although price dropped drastically in 3rd month, the “discount” has been averaged by 2nd month price hike.
The objective of practicing Dollar Cost Average is to protect you from major silver price movement. It helps you to average the total buying cost for each oz and also average the total oz you eventually own. It is an investment strategy designed to “not to lose” your money. This is a very safe investment strategy only if you follow it consistently.
This is a sample chapter from eBook titled Practical Guide for: Investing Silver in Malaysia. Download the full version