What is Dollar- Cost Average ?
In my context , Dollar -Cost Average means purchasing shares with certain fixed amount of money on a regular basis ( every monthly and almost the same date ) regardless of share price. Thus more shares are bought when share price is low and less shares are bought when share price is high .
An example would be Capitamall Trust (CMT) which i have been accumulating with POEMS Share Builder Plan as shown :
You could see the shares difference bought between April and May 2013. Highlighted yellow would be the dividends reinvestment made with purchase. ( Do note that Poems Share Builder Plan makes the purchase every 18th of the month, if the date falls on a weekend or public holiday , it will be on the next working day . You will normally be able to see how much you shares bought given a few working days ( 2 to 3 working days.) after the purchase has been made.)
For Dividends Reinvestment wise , it will be added with your fixed amount onto your next month of purchase . One example would be the recent Aug 2014, the Dividend payable date for CMT on Aug 2014 is 29th . Share Builder Plan activate its buying on every month 18th , Thus the Dividends Reinvestment will accumulate on with the next buy , which shows the sudden increase of shares on Sept 2014.
What are the Pros and Cons of Dollar-Cost Average ?
Pros
- You do not have/need to time the market, just leave it to your brokerage or firm.
- You can invest with minimum of $100 per month to accumulate you shares.
- You may amend your amount of money along the way.
- You may reinvest your dividends to accumulate more shares thus compound effect.( DRIP)
- Your average price are likely not to be highest compared to the highest point of the share.
Cons
- You can't time the market. ( the job becomes your brokerage or firm.)
- You need lots of patience, stay faithful to your conviction and ignore scaremongering from news , friends and family.
- Your average price are likely not to be lowest compared to the lowest point of the share.
- There are administrative , dividends or other charges normally for such plans .
- The account is normally held by brokerage /firm/banks custodian instead of CDP ( The Central Depository) which you may not be able to attend AGM ( Annual General Meeting ) , receive ARs ( Annual Reports ) , Dividends may not be credited on time ( share payable date) into your bank account.
What is DRIP ?
Drip means Dividends Re-Investment Plan. It is a plan that is offered by corporation , firm that allows you to reinvest your cash dividends to get additional shares on the payment date.
Drip is like a pail collecting drips of water. Though it is a slow process , but for every drip of water into the pail , the pail becomes fuller . You want to make sure the frequency of drip is constant or more , so that the pail becomes fuller with lesser time . There comes with the quality of water drip which is another story.
Bruce Lee mentioned in his quote " Empty your mind . Be formless , shapeless . Like water . You put water into a bottle , and it becomes the bottle . You put into the teapot , it becomes the teapot . Water can flow , or it can crash . Be water , my friend ! "
What i say ? " Drink more water , my friend ! "
