RaboDirect regular investor plan
A great way for you to reduce the impact of managed fund price fluctuations is by purchasing set dollar amounts regularly over time. This is a good approach if you have a long term investment goal and a fixed income.
With a RaboDirect regular investor plan you can easily invest a fixed amount of money at specific intervals into one or more funds. We make it easy for you to make regular investments automatically from your bank account.
The benefits are:
- You're taking advantage of a common investment strategy known as 'dollar cost averaging'
- It's an easy way to commit to a regular investment strategy - once set up you don't have to worry about it
Why use a regular investor plan?
Wouldn't it be great if you could always pick the best time to buy and sell?
With a regular investor plan we can help you take advantage of a common investment strategy called 'dollar cost averaging' which can help smooth out the ups and downs of market volatility over an extended period of time.
Here's an example that compares two investors, Stephanie and Ian, that illustrates how it works:
Stephanie
Stephanie invests $1000 per month into a managed fund with an initial unit price of $10. Over the next few months, the market falls (causing the unit price to drop) before recovering to its original value.
| Month | Contribution | Unit price | Units purchased |
|---|
| 1 | $1000 | $10 | 100.00 |
| 2 | $1000 | $9 | 111.11 |
| 3 | $1000 | $8 | 125.00 |
| 4 | $1000 | $7 | 142.86 |
| 5 | $1000 | $6 | 166.67 |
| 6 | $1000 | $5 | 200.00 |
| 7 | $1000 | $6 | 166.67 |
| 8 | $1000 | $7 | 142.86 |
| 9 | $1000 | $8 | 125.00 |
| 10 | $1000 | $9 | 111.11 |
| 11 | $1000 | $10 | 100.00 |
| 12 | $1000 | $11 | 90.91 |
| Total | $12,000 | | 1582.18 |
After 12 months Stephanie has invested a total of $12,000 and has received 1582.18 units.
The average price of the total number of units bought during the past 12 months is $7.58 ($12,000 / 1582.18 units = $7.5844).
At the end of the 12 months, the unit price is $11. If you multiply the current unit price by the number of units Stephanie bought over the past 12 months, the total value of her investment is now worth $17,403.98 ($11 x 1582.18 units). She invested a total of $12,000 so has made a profit of $5,403.98, even though at the end of the 12 months the unit price is higher then when she first invested.
Remember: dollar cost averaging doesn't guarantee a profit. However, with a sensible and long term investment approach, dollar cost averaging can help you to smooth out the unit price ups and downs and may help you to potentially reduce risk of loss.
Ian
If like Ian you instead chose to invest $12,000 in the first month, after a 12 month period your investment would only be worth $13,200 (1200 units x $11).
| Month | Contribution | Unit price | Units purchased |
|---|
| 1 | $12,000 | $10 | 1200 |
| Total | $12,000 | | 1200 |
Compared with Stephanie's investment, that's a difference of $4,203.97 in returns.
| Month 12 | Unit Price | Investment | Units | Value | Growth | Return |
| Stephanie | $11 | $12,000 | 1582.18 | $17,403.97 | $5,403.97 | 45% |
| Ian | $11 | $12,000 | 1200.00 | $13,200.00 | $1,200.00 | 10% |
Dollar cost averaging is a strategy that means when the price is high you buy less units and when the price is low you buy more, just like shopping at a sale.
Remember: dollar cost averaging doesn't guarantee a profit. However, with a sensible and long term investment approach, Dollar cost averaging can help you to smooth out the unit price ups and downs and may help you to potentially reduce risk of loss.
