Portfolio Revision Formula Plans 1: Dollar Cost Averaging

This episode discusses the dollar cost averaging strategy for portfolio revision. It is a simple, passive strategy aimed at increasing the value of portfolio over time.

Personally, I feel it is a strategy for a risk-averter who does not wish to commit a huge sum of money into the market at one go. This strategy, being passive, may also appeal to retirees.

The video is only educational and is tailor-made to demonstrate the motivation of growth in portfolio value over time and you will observe that the prices over 6 months are generally rising. But what if the security prices continued to fall? The portfolio would tend to lose value even if it meant buying more securities to maintain the dollar investment per month. Therefore, the risk averter needs to keep in mind the distinction between actual risk and perceived risk because if you enter the investment world, nothing is ACTUALLY risk-free.

However, we can always hope (realistically enough) that over a long-term, market volatility will tend to even out the playing field and any fall in the portfolio value will be offset by subsequent growth.

Whether this strategy can produce excess returns is a matter of debate and empirical observation. My understanding is that over a long term, it will work towards capital preservation more than capital growth. You can differ from my opinion and that is exactly the point of learning finance.....debating and cross-arguing, to arrive at an optimum solution, if any.