In Malaysia, it is also known as Ringgit Cost Averaging.
Basically this concept is adopted by wealth advisors to help their client to “save”(or invest) for certain purposes such as for children education or retirement fund.
Let me quote this example of how DCA works:
On January 2001, Mr A agreed to give me RM100 each month to buy gold coins. That month it is sold at RM1 per coin, so I managed to get 100 coins for him.
On February 2001, the coin price has gone up to RM1.11 per coins. So I only managed to get him 90 coins only.
On March 2001, the coin cost RM0.83 per piece, so I got him 120 coins.
These transactions continue for 5 years. Sometime I got it cheap, sometime very expensive but each month I help Mr A to buy his coin without fail.
By end of 5 years, Mr A has given me a total of RM6000 and I managed to get him 7500 coins. So the cost per unit of these coins is only RM0.6666.
On December 2005, these coins are sold at RM1.2 per piece. Mr A decided to sell all his 7500 coins and he got RM9000 from the sale proceed.
Capital = RM6000
Selling Price = 7500 coins x RM1.2 = RM9000
Profit = RM9000 – RM6000 = RM3000
Return on Investment = profit/capital x 100 = RM3000/RM6000 x 100 = 50%
Yearly profit = 10%
Note of Disclaimer:
The above illustration is just an example the help readers to understand the concept of DCA. It should not be construed as and shall not form part of an offer or solicitation to buy or sell any products and/services. Before you decided to buy any financial product/service, please consult your financial advisor to understand the risk involved and the suitability of the product/service as per your need.
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