Help yourself to a Regular Investor Plan
A great way for you to reduce the impact of managed fund price fluctuations is by purchasing set dollar amounts regularly over time. This is a good approach if you have a long term investment goal and a fixed income.
With a RaboPlus Regular Investor Plan you can easily invest a fixed amount of money at specific intervals into one or more funds. We make it easy for you to make regular investments automatically from your bank account.
The benefits are:
- You're taking advantage of a common investment strategy known as 'dollar cost averaging'
- It's an easy way to commit to a regular investment strategy - once set up you don't have to worry about it
Why use a Regular Investor Plan?
Wouldn't it be great if you could always pick the best time to buy and sell?
With a Regular Investor Plan we can help you take advantage of a common investment strategy called 'dollar cost averaging' which can help smooth out the ups and downs of market volatility over an extended period of time.
Example 1
Say you invest $500 per month into a managed fund that initially had a unit price of $1.2000. Over the next few months, the market falls (causing the unit price to drop) before recovering to its original value.
| Month | Contribution | Unit price | Units purchased |
|---|
| 1 | $500 | $1.2000 | 416.6667 |
| 2 | $500 | $1.1000 | 454.5455 |
| 3 | $500 | $1.000 | 500.0000 |
| 4 | $500 | $1.1000 | 454.5455 |
| 5 | $500 | $1.2000 | 416.6667 |
| Total | $2,500 | | 2242.4242 |
At the end of the five months you have invested a total of $2,500 and you have received 2242.4242 units.
The average price of the total number of units bought during the past 5 months is $1.1149 ($2,500 / 2242.4242 units = $1.1149).
At the end of the five months, the unit price is $1.2000. If you multiply the current unit price by the number of units you bought of the past five months, the total value of your investment is now worth $2690.91 ($1.2000 x 2242.4242 units). You invested a total of $2,500 and your investment is now worth $2690.91. That's a profit of $190.91, even though at the end of the five months the unit price is the same as when you first invested.
Remember: dollar cost averaging doesn't guarantee a profit. However, with a sensible and long term investment approach, Dollar cost averaging can help you to smooth out the unit price ups and downs and may help you to potentially reduce risk of loss.
Example 2
Equally for the same $500 per month investment plan had the unit price for the five month period started at $1.0000 then increase as the market grew to $1.2000, then the market falls back again over the following months to it's original value.
| Month | Contribution | Unit price | Units purchased |
|---|
| 1 | $500 | 1.0000 | 500.0000 |
| 2 | $500 | 1.1000 | 454.5455 |
| 3 | $500 | 1.2000 | 416.6667 |
| 4 | $500 | 1.1000 | 454.5455 |
| 5 | $500 | 1.0000 | 500.0000 |
| Total | $2,500 | | 2325.7576 |
At the end of the five months again you have invested $2500 but now you have received 2325.7576 units.
This time the average price of the total number of units bought during the five months is $1.0749 ($2500 / 2325.7576 = $1.0749).
At the end of the five months again you have invested $2500 but now you have received 2325.7576 units. This time the average price of the total number of units bought during the five months is $1.0749 ($2500 / 2325.7576 = $1.0749). At the end of the five months the price is back at $1.0000. If you multiple the current unit price by the number of units you bought your investment is worth $2325.76 ($1.0000 x 2325.7576). You invested a total of $2,500 and your investment is now worth $2,325.76 which is a loss at this point in time of $174.24, even though the unit price is the same as when you first invested.
Dollar cost averaging is a strategy that means when the price is high you buy less units and when the price is low you buy more, just like shopping at a sale.
Remember: dollar cost averaging doesn't guarantee a profit. However, with a sensible and long term investment approach, Dollar cost averaging can help you to smooth out the unit price ups and downs and may help you to potentially reduce risk of loss.