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Regular Investment Programs
Making regular
deposits into an investment fund rather than one large lump sum
deposit can reduce the vulnerability of your investment to
market fluctuations. For example:
You commit to
investing $100 a month in January. With a unit price of $1.00,
your first instalment purchases 100 units. The next month, you
invest another $100 but this time the unit price has risen to
$1.10, buying you 90.91 units. This is illustrated in the table
below.
|
Month |
$
Invested per month |
Unit
price $ |
Units
Purchased |
Cumulative Value $ |
|
January |
100 |
1.00 |
100.00 |
100.00 |
|
February |
100 |
1.10 |
90.91 |
210.00 |
|
March |
100 |
1.05 |
95.24 |
300.45 |
|
April |
100 |
0.95 |
105.26 |
371.84 |
|
May |
100 |
0.90 |
111.11 |
452.27 |
|
June |
100 |
0.85 |
117.65 |
527.14 |
|
July |
100 |
0.75 |
133.33 |
565.13 |
|
August |
100 |
0.90 |
111.11 |
778.15 |
|
September |
100 |
1.05 |
95.24 |
1,007.84 |
|
October |
100 |
1.10 |
90.91 |
1,155.84 |
|
November |
100 |
0.95 |
105.26 |
1,098.22 |
|
December |
100 |
1.00 |
100.00 |
1,256.02 |
|
Total |
1,200 |
|
1,256.02 |
1,256.02 |
Assuming you
continue to save $100 a month for the rest of the year, you will
purchase varying quantities of units at fluctuating prices. By
the end of the twelve months the unit price has returned to
$1.00. At first it may seem that no gain has been made. But if
you look at the number of units purchased, your investment
account shows a balance of 1,256.02 units purchased with
$1,200. With a current unit price of $1.00 the investment is
now worth $1,256.02, $56.02 more than your overall contribution
for the year - a return of 4.67%.
If unit prices
rise consistently above $1.00 in the following years, you stand
to make significant profits. Alternatively, if unit prices fall
below $1.00 you may lose money. However it has been shown that
regular investing can be a profitable strategy over the
long-term, particularly when markets are falling.
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