MPF Investment

Principles of Fund Investment

Dollar Cost Averaging
“Buy low, sell high” strategies require investors to speculate in the market and make a lump sum investment. However, such investment may prove to be poorly timed. Instead of speculating on the timing of making investment, MPF adopts a prudent investment technique - dollar cost averaging, to reduce market risks and the effects of short-term market fluctuations on investment.

Dollar cost averaging with MPF

With dollar cost averaging, investors invest a fixed amount regularly, regardless of the unit prices. MPF scheme members apply dollar cost averaging by purchasing MPF funds regularly at market prices with their monthly fixed contributions.

Benefits of dollar cost averaging

When the unit price is high, the same amount buys fewer units.
When the unit price is low, the same amount buys more units.

After a period of time, the costs of fund units will be averaged out. In the long run, this helps to reduce the effects of short-term market fluctuations on investment.

The example below shows how dollar cost averaging works when fund price fluctuates.

Assuming in January, the fund price of a fund is $10, on the high side. With monthly contributions of $1,000, only 100 fund units are purchased. Then, the fund price fluctuates and it drops to $4 in March. With the same amount of monthly contributions of $1,000, 250 units are purchased. After six months, with fund units bought at various prices, the unit price of the fund averages at $5.8.

Note: Although dollar cost averaging can mitigate the impact of short-term market fluctuations on fund prices over time, it does not guarantee any gains. Any gains will be determined by the market price at the time you sell the fund.