19 July, 2018
Investors employ various strategies to maximise their chances of getting the best returns. All strategies have their pros and cons. We cover the strategy of choice for investors who want to achieve long-term stability by exercising strict financial discipline – dollar cost averaging.
It is the practice of systematically investing a fixed dollar amount into a particular investment on a regular schedule – regardless of fluctuations in the market price. The result of this is that an individual buys more units when prices are low and fewer units when prices are high.
Diversification
There is no free lunch. But Diversification comes close in investing. A diversified portfolio was shown to have the ability to optimize returns with lower volatility in the long run. Divergence in the performance of portfolios can be attributed to asset allocation.
Review and rebalance: navigating waves of volatility
Market volatility is unavoidable. So, how should investors stay calm and ride through market ups and downs? It’s important to review and rebalance portfolios, so your investment can remain on track.
Plan for retirement with inflation in mind
To live comfortably in sliver age, your goal should not be merely to accumulate assets worth a nominal value. Inflation should also be considered to ensure an investment appreciates over the years, so its real purchasing power can satisfy your retirement needs.
No single investment strategy guarantees easy profits or big returns. What’s important is finding a viable long-term strategy that matches your risk appetite, financial goals, and budget. Key highlights of the strategy include:
Investment markets fluctuate, as shown in chart below. Therefore, it is difficult to choose the best time to invest.
Source: Bloomberg, as of 30 June 2018. Total returns in US dollar.
Source: Bloomberg and MSCI, as of 31 December 2017. Total returns in US dollars. Index value is rebased as US$ 10 (initial unit price) on 31 January 2013. Monthly investment is made on every month end at rebased unit price. As of 31 May 2018, the geographical allocations of MSCI Emerging markets index are as follows: China (31.74%), South Korea (15.36%), Taiwan (11.65%), India (8.48%), South Africa (6.47%) and others (26.3%). The example mentioned is for illustrative purpose only. The information neither indicates any actual portfolio holdings nor constitutes any investment recommendation or advice. Different investments have different volatile patterns. Past performance is not an indicative of future performance.
Source: Bloomberg and MSCI, as of 31 December 2017. Total returns in US dollars. Index value is rebased as US$ 10 (initial unit price) on 31 January 2013. Monthly investment is made on every month end at rebased unit price. As of 31 May 2018, the geographical allocations of MSCI Emerging markets are as follows: China (31.74%), South Korea (15.36%), Taiwan (11.65%), India (8.48%), South Africa (6.47%) and others (26.3%). The example mentioned is for illustrative purpose only. The information neither indicates any actual portfolio holdings nor constitutes any investment recommendation or advice. Different investments have different volatile patterns. Past performance is not an indicative of future performance.
Financial Performance:
Dollar cost averaging vs lump sum investing
Performance varies for the two strategies. Dollar cost averaging has outperformed lump sum investing in certain markets or seasons. Otherwise, popular consensus lean towards lump sum investing recording higher returns for calm and experienced investors over time. But two things to keep in mind:
Cash is king?
Amid volatile market conditions and higher interest rates, seeking security by burying your savings in a deposit account is tempting. As the saying goes, “cash is king”. Or is it?
Debunking investment myths to navigate market volatility
With equities, bonds and major foreign currencies falling in tandem in 2022, investors’ portfolio performance was inevitably dragged lower too. This is triggering plenty of questions about markets and investment planning. Let’s debunk some common investment myths and discuss ways to navigate market volatility.
Diversification
There is no free lunch. But Diversification comes close in investing. A diversified portfolio was shown to have the ability to optimize returns with lower volatility in the long run. Divergence in the performance of portfolios can be attributed to asset allocation.
Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. The information and/or analysis contained in this material have been compiled or derived from sources believed to be reliable at the time of writing but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained her
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