By making regular monthly contributions into segregated funds you benefit from one of the greatest tools available to a long term investor, dollar cost averaging. In a segregated fund you are purchasing units of value.

The strategy of dollar cost averaging is the investment of the same number of dollars at regular intervals, regardless of the price of the investment units being purchased. Because more units are being purchased at lower unit prices than higher unit prices, one can reduce the average cost of the investment. Dollar cost averaging removes the market timing problem by imposing discipline on your investment program.

The following hypothetical table demonstrates how dollar cost averaging works over a 12 month period with $100 per month invested consistently.

The average unit price over 12 months was $10.00 per unit [unit price totals divided by the total number of months]. The investor's average cost to purchase these units was $9.60 per unit [total investment divided by total units purchased]. As you can see, the average cost per unit was lower than the average unit price over the time period covered. The investor was able to purchase more shares when the share price dropped and fewer as it rose.

To start this kind of investment plan, you may want to consider the automatic investment plans with the insurance company where monthly amounts are automatically transferred with your permission from your bank account directly into your Segregated Funds account. You may specify how much per month is to be transferred on a particular day each month into your investment account. The amounts you stipulate will automatically be directed into the proper segregated fund.

Dollar cost averaging requires discipline and consistency. This strategy is not designed for short term profits, but for accumulating assets over the long term.

So, as you can see, investing on a monthly basis allows clients to spread out the risks related to stock market fluctuations by allocating the purchase of shares at different prices over a twelve month period, thereby reducing the risk of investing at the wrong time.

Note:  The PAC program can be used with registered investments as well as non-registered investments.

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DollarCost Averaging