I thought I'd share with you, how to grow your retirement pot on autopilot using Dollar Cost Averaging (D.C.A). There is often confusion as to what dollar cost averaging is and whether people should use the strategy with their investments. The simple answer is yes, for most people who are saving for retirement.
It doesn't matter if you feel a little behind with your retirement saving, even $50 a month will make a big difference to your pot following this strategy over time.
What is D.C.A?
It's a very simple strategy, by investing a fixed amount on a regular basis, for example $100 monthly, an investor will be buying the investments at different prices taking advantage of the price fluctuation in the underlying shares or units. One of the least understood secrets of this strategy, is that the investor can take advantage of a falling market, or down cycle, because they are getting more bang for their buck! To put it another way, if the investor spends $10 a week on apples and next time he or she goes shopping and the apples are half price, then that investor will get twice as many apples for the same $10. When the price goes up again, that investor will have twice as many apples going up in value. Its very simple, but very powerful and with a auto contribution running from the bank account, he or she, doesn't even need to think about it!
This leads me on to the markets dropping, something many fear. Most investments will produce a dividend or interest income and it is a good idea to have that also on autopilot being re invested into the account. The reason for this, once again, is D.C.A. When the markets drop and the income is automatically added to the account, that income automatically buys share/units at cheaper prices once again. So the account will work very hard for the investor without him or her having to do anything. How cool is that?