Well, I think there is, it is called "Money Cost Averaging". It is an investing strategy where you invest fixed amount of sum at a regular interval over a long period of time. The amount of money invested at each interval remains the same over time, but the number of shares purchased varies based on the market value of the shares at the time of a purchase. When the markets are up, you buy fewer shares due to the higher cost per share. When the markets are down, the situation is reversed and you purchase a greater number of shares. It's a strategic way to invest because you buy more shares when the cost is low, so you get an average cost per share over time, meaning you don't have to invest the time and effort to monitor market movements and strategically time your investments. Having said that, this strategy then works well with mutual fund investing. This is because in mutual fund the fixed sum is simply divided with the cost per share to get the number of share bought, whilst when you are directly investing in equity, there is a minimum lot to buy depending on the cost per share. Of course, you can choose to buy or sell through odd lot but, you might find it difficult to buy or sell as few only trade in it. Using this strategy in direct equity investing will result to often have remainder on the fixed amount invested. Thus, the core concept of the strategy to which it will invest with a fixed amount at a regular interval is hardly meet. Keep in mind though that, unless the mutual fund NAVPS you invested in is increasing fast enough to compensate the investment fees involve, it might take a while before you appreciate the result.
First, when the market or the NAVPS is suppose to be in bullish trend. With this scenario, you probably wish you have invested huge amount early on so as to gain more but, keep in mind that equity market is not always in bullish trend. The gain may be reduce but then so as the risk in this scenario.
Second, when the market is suppose to be moving sideway. As seen in the illustration, even though it's moving sideway, still the result yield to be favourable.
Third, when the market is suppose to be in bearish sentiment with up trend bias. As you can see, with this scenario the result still yield to be positive.
In all the scenario, the result may seem like always favourable but this strategy requires discipline to stick to it over a long period of time. It may seem easy but when emotional thinking kicks in like say for instance when you speculate that the market is going to be bullish, you are probably tempted to invest more than the planned fixed amount to be invested at a regular basis, and when at bearish trend, fear will probably kicks in and will reduce or not fund the investment yet. So, to avoid this, keep in mind the core idea of this strategy and, most importantly study the fund you are planning to invest in, understand its feature and know the fees involve. The illustration shows only the sales load but there is another visible fee which is the exit fee, that's if you plan to withdraw your investment within the allotted holding period.
Below is the illustration of how money cost averaging supposed to works to lessen the risk given the 3 scenario in equity market. (Click to Enlarge)
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First, when the market or the NAVPS is suppose to be in bullish trend. With this scenario, you probably wish you have invested huge amount early on so as to gain more but, keep in mind that equity market is not always in bullish trend. The gain may be reduce but then so as the risk in this scenario.
Second, when the market is suppose to be moving sideway. As seen in the illustration, even though it's moving sideway, still the result yield to be favourable.
Third, when the market is suppose to be in bearish sentiment with up trend bias. As you can see, with this scenario the result still yield to be positive.
In all the scenario, the result may seem like always favourable but this strategy requires discipline to stick to it over a long period of time. It may seem easy but when emotional thinking kicks in like say for instance when you speculate that the market is going to be bullish, you are probably tempted to invest more than the planned fixed amount to be invested at a regular basis, and when at bearish trend, fear will probably kicks in and will reduce or not fund the investment yet. So, to avoid this, keep in mind the core idea of this strategy and, most importantly study the fund you are planning to invest in, understand its feature and know the fees involve. The illustration shows only the sales load but there is another visible fee which is the exit fee, that's if you plan to withdraw your investment within the allotted holding period.
Investing in Mutual fund in Philippines comes with a cost, Click: (Understanding Mutual Fund Fees), know how much will it affect your gain because, I'm sure for the first few months you will not appreciate your investment result as it will be dragged down by the visible fees involve, unless of course the fund you invested in grow fast enough to compensate the investment fees. You'll realise this if you monitor your investment closely factoring the fees involve and inflation. This probably is another reason why it is most advisable to invest long term in mutual fund following this strategy diligently.
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