How time flies! We hope your first quarter was fruitful and opportunities were abound. May all of us continue to experience positive growth throughout the year.

Financial planning is important to grow our wealth yet this is a daunting topic for the ordinary Joe and average Jane on the streets. These are the people who work hard and save but fear investing.

It is understandable as building an investment portfolio can be off-putting especially if they are new to it. A relatively simple and low-risk introduction to investment is ringgit-cost averaging.

In this issue, we explore what ringgit-cost averaging is and how it can benefit individuals who want to grow their wealth yet do not have a large capital sum.

We hope you enjoy it and find it informative.

Yours truly,

Judy Yap
Director, Brand & Communications.

Understanding Ringgit-Cost Averaging

Building an investment portfolio is a daunting task and a major milestone for many first timers. For young adults, it is an exciting time with potential financial windfall if the right strategy is put in place.

An established and popular strategy is the dollar-cost averaging, whereby an individual invests a set amount of money into a stock or equity market over a period of time regardless of the price. Better known to Malaysians as ringgit-cost averaging, this approach is accepted by most financial planners and investors to be sound and sensible as the risks are lower.

Unlike lump sum investing, investors practicing the ringgit-cost averaging cut the volatility of their portfolios by spreading out their investments. Theoretically, they would purchase more shares at lower price and fewer shares at higher prices because they are gradually investing a fixed amount of money no matter how what the market performance is.

The real attraction of ringgit-cost averaging is that it allows investors to ease into a market that they might not otherwise have access to. First time investors do not usually have the big funds needed for lump sum investing. Even if they do, lack of expertise and knowledge in the markets coupled with a tumultuous global economy makes ringgit-cost averaging a better choice for them. It allows them to take baby steps as they build their investment portfolio and gain the confidence.

But lump sum investment would yield bigger returns in a bull market as shares would have been bought at a lower price. A Time Magazine write-up published in November last year quoted American mutual fund giant Vanguard saying that investors are better off putting their money into lump sum investments. The key finding was that "the longer one took to invest, the lower the total return". The article argues that lump sum investment is safe as long as it is a diversified portfolio but that ringgit-cost averaging will still remain compelling because of the reduced risks.



Source:
Time Magazine Online, Is Dollar-Cost Averaging Dumb? (November 15, 2012)
MoneyChimp, Does Dollar Cost Averaging Work?
Forbes, Does Dollar Cost Averaging Make Sense?
Wisebread, The Pros and Cons of Dollar-Cost Averaging (February 6, 2008)

      

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