fori

investing

Moldowan

THE BOTTOM LINE

INVESTORS WANT to buy
low, sell high. Yet, many peo-
ple tend to get caught up ia
@ buying spree and invest
when stocks are soaring,
then lose nerve and sell out
when they are sinking.

".” ‘This is a simple strategy that
appeals to conservative investors

who want to take advantage of
market growth to invest toward a

‘long-term goal, such as retirement

or a child's education. ©
* Dollar-cost averaging simply
means investing a set amount at

_ regular intervals, such as $200

every month. After'a period of

” time, say five years, you should

own more shares than if you had
- invested the entire amount at the

" outset. This is possible because you

will have purchased more shares
‘when the market is low, fewer
. when it’s high. For example, $500

, will buy 100 units of a mutual fund

- priced at $5/unit, but 125 units

*~ when ‘its price drops to $4/share. In

this exarnple, your average cost per
share will be lower than the aver-
age price on the dates you made
your purchase. This strategy may

:~ be attractive to investors with the

determination ‘to give a long-term

investment program a fair try.
Dollar-cost averaging, which is

similar in concept to a disciplined

'

savings program such as payroll
deduction, works especially well
with no-load or low-load mutual
funds, but less well with individual
stocks, Many mutual funds allow
you to invest small amounts and
your risk is spread.over a number
of issues. However, be sure to
check the funds’ management fee
schedules. Stocks, on the other
hand, normally are sold in lots of
100, often requiring a purchaser to
invest more or less than the
planned monthly payment.

However, dollar-cost averaging
is not “fail proof.” If your stock or
mutual fund is a good quality
investment that holds its value, it’s
true that after a long period your
average cost is almost certain to be
lower than the average price,
resulting in a net gain. But no stock
or fund that begins to fall sharply is
guaranteed to rise again. Thus, in a
falling market, it’s possible for the
dollar-cost invesior to “‘average-
down” right out of the market. Be
ready to bail out, as you would
with any other strategy, if you
believe your investment is in a seri-
ous tailspin.

The Bottom Line: Dollar-cost
averaging makes sense if you want
to build assets at a lower average

_ cost, as this strategy almost assures

you that you will acquire more
shares, while redu ing much of the
market-timing risk, too. But, as
with any investment, you must still
choose and monitor your stock,
mutual fund or other investment
carefully. A qualified investment
adviser can assist you in putting
this strategy to work and in moni-
toring its success. Ongoing support
is necessary to make this strategy
pay off in the long-run.

Russell is an investment adviser
with ScotiaMcLeod. He advises on
investment management and retire-
ment planning. If you have any
questions on dollar-cost averaging
or would like to have him answer
your questions privately or in this

- column, you may contact him at

661-7475, e-mail at

russellm@ unixg.ubc.ca, or write at
P.O. Box 10342, Pacific Centre,
Vancouver V7Y 1H6.

ATRIMONIA

HUGH

STARK

KIRSTIE

_ MACLISE

“Over Thirty Years Combined Experience”

Authors of DOMESTIC CONTRACTS
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