Objective Trading

According to virtually every major survey on New Year’s resolutions (including one conducted by the US government), taking better care of our finances ranks in the top 3 goals for the vast majority of people. On the one hand, it is encouraging that so many people are prioritizing their financial affairs. On the other hand, we all know what happens to New Year’s resolutions between the day they commence and the end of the year. Some studies suggest that fewer than 15% of people who make resolutions follow through on them by the middle of the year. No doubt this is linked to the observation that of those people who make a resolution, fewer than 79% have a specific plan to achieve their goal.

A common question that comes up among investors is whether it is better to save up large sums of cash and then invest it all at once, or invest small amounts regularly. Dollar Cost Averaging (DCA) refers to the practice of investing a fixed amount at defined intervals (often monthly) into a fund or portfolio of funds. By investing this way more units are purchased as prices drop and fewer units are purchased as prices rise. Investors use DCA to guard against the market dropping shortly after investing a lump sum.