Investors who do not wish to be stressed by market volatility adopt dollar cost averaging method for improving long-term investment planning. Instead of investing all your money in one go, you invest a set amount of money at regular intervals quarterly or monthly for example regardless of market swings.
By adopting dollar cost averaging, you will be less tempted to make decisions based on short-term phenomena. You benefit from market swings in both ways. This approach is best viewed as a method to separate emotions from the investment processes. Instead of trying to time the market in response to greed or fear, you invest on an installment plan with the view that your money will grow over the long-term.
Consider the following hypothetical example Mr. X adopts dollar-cost averaging and has been buying unit trust A regularly at a constant amount of RM2,000 per month over the entire period. Mr. Y invests at one time all his money in unit trust A. Refer to Table 1 for details.
Mr. X enjoys a 5% profit from his investment while Mr. Y made a lost of 6% when both redeem their investment at RM0.85. From the above example, the rationale is - steady investments let you purchase more units when the prices are low and less when the prices are high. In other words, you even out the risk of buying at the peaks and selling at the bottoms. The technique does not automatically guarantee a profit or protect against a loss, but it usually results in a lower average cost per unit over time, and as an investor, you may redeem once your investment generate the target profit set by you.
Info from : http://www.affinfund.com.my/faq2.htm#q11
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