11 April 2014

Dollar-cost averaging - useful in combination with index funds

Dollar-cost averaging may not be a 'sexy' investment strategy but it may suit conservative long-term investors that realise that they will never be able to 'time' the market perfectly. As equities (hopefully) have an upward bias an investor should be able to generate a satisfactory return - especially if he does not focus on stock-picking (this could lead to pick the wrong stocks that do not participate in the overall market trend). The same strategy can be applied to bond investments. The main difference would be that the investor could in addition vary the maturity term of his bond investments, i.e. longer maturities in high interest environments and vice versa.