Option 4 - Dollar Cost Averaging
Investing a fixed sum on a regular basis, allows you to "dollar cost average" into the market. Dollar Cost Averaging is a strategy whereby the investor makes investments in a security at regular intervals over a period of time. This can be contrasted with investing one large lump sum and not making any additional ongoing contributions.
It is a disciplined investment technique that can enhance returns by turning the market's volatility to your advantage. Dollar Cost Averaging works best in a falling or volatile market over a long period of time. It does not guarantee a profit, however, it does provide a highly effective way to minimise the risk of investing at a bad time.
By using the Dollar Cost Averaging approach you may be able to reduce the effects of a correction or downturn in the market on your capital base as well as accumulating more units/shares while prices are low. The risk of using this approach is that if the market performs well you will not generate as high a return as if all of the money was invested into the market at the beginning of the investment period.
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