Dollar Cost Averaging

http://www.youtube.com/watch?v=rnhVDxpociU

One concept that has dominated the financial services industry for decades and which has had a significant impact on the performance of portfolios in recent years is the notion of dollar cost averaging. According to industry experts, dollar cost averaging reduces the risk of investing in volatile markets and helps to avoid the ‘so called’ pitfalls associated with ‘timing’ your entry into the market.

Dollar cost averaging involves placing deposits into an investment at regular intervals over a period of time, regardless of whether the market is moving up or down, so as to average the price of the investment. Obviously this strategy is questionable given that portfolios using this strategy have fallen heavily since 2007. Furthermore investors and professionals practicing this technique have subjected their investments to a higher level of risk, which is exactly what they were trying to avoid. In my opinion adding to an investment that is falling in value increases risk and should be avoided at all times,

So what can we expect in the market?

Markets always test highs and lows, and I believe the current down move on the market is simply a test of the previous low. If this is correct, we should see price hold above the low of 3201.5 achieved on 21 November, before it moves up in the next bullish run into May or June 2009.

That said nothing in the share market is guaranteed and it is still possible the market may fall to below 3000 points. It is for this reason why it is always essential to wait for confirmation of a move before making a decision to enter into the market. Right now many investors are buying shares because they believe they are cheap, which is a very high risk strategy. Until the market confirms a direction, investors should avoid making any decisions. Remember, patience is the key.

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.

For more information please visit www.wealthwithin.com.au

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