Dollar Cost Averaging & Dividends

                                                    Dollar Cost Averaging

Its a savvy way to invest/reduce risk of the market swings, with the joint power of regular Dollar Cost Averaging and the Reinvesting Dividends strategy. The end result is your "real cost" (what you paid in) will be lowered over time with this consistent approach

                                                          The Numbers 

We start by buying a set amount of investment each month and thus provides insulation against changes in market price. Say we put in $100 per month and the unit cost $10 in January and so we get 10 shares, another $100 in February and the unit price drops to $5.00, so we pick up 20 shares. March, $100 goes in and the unit price has bounced back to $7.50 per unit and we get 13.34 shares. Now looking at this from afar, you say i started out at $10 per share it fell to $5 and rebounded to $7.50, I've lost money. But wait that is magic of this game plan, as you picked up more shares when the price was down during those months. So you ended up with 43.34 shares x $7.50 ( March Unit Price) = $325.00 and your "real cost" was $300.00  

                                                               Reinvest

Next we make sure that the bought units pays out a dividend, which is when a company earns a profit and it distributes up to 4x per year to its investors Say Company XYZ paid you a $50 dividend for its 1st Quarter in February, so then you would of received 10 shares ($5 Feb unit price into $50) again this will bring down your "real cost" as you have more total units.

                                                 Watching Your Bottom Line

 Now if investing larger amounts per month, the entry point into the market is key and this is where a good investment company comes into play if your nervous about doing it yourself. I so, then ask/watch about their management expense ratios (MERs) or sales commissions (front end loads and deferred sales charges) as these fees can put a huge dent into your profits. As in Canada we have some of the highest mutual fees in the world and most are hidden or never seen on your statements

Also another saving tip is to stick with your own countries markets, this is to eliminate the steep currency conversion costs

                                                              Other Options

Look for brokerages with zero fees on certain purchases and use the DRIPs which is a dividend reinvestment plan that allow you to automatically reinvest into shares for $0 commissions

Finally utilize any tax advantaged accounts that are available and this will protect your compounding growth from taxes

Fun Math
Nothing gives you more incentive than watching your investment grow, so to calculate when it will double your cash, use the Rule of 72
For example if you have $10,000 working for you @ 6% fixed annual rate, you divide 72 by 6 and in 12 years you will have duplicated your money

Great Perk
If your company runs this program, absolutely yes to sign up
They will offer a discount of 10 -15% off the market price, you choose what amount that comes out through the payroll deductions and the best part is a benefit called the "lookback provision" This means your company will review the stock price on two dates (the start of the offering period and the purchase date) and applies your discount to the lower of the two prices