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Dollar-cost-averaging...

Updated: Aug 15


There was one big part of my portfolio that I (mostly) didn't discuss in the article yesterday, and that is my ETFs. As I wrote, I have my index ETFs to make sure that my portfolio tracks broadly in line with the good long-term returns that the market has shown in the past, and will certainly show in the future.


I built my ETF portfolio slowly over the past two and a half years, and it occupies about 30% of my total portfolio. I make regular contributions to three funds every week, and every month. This is called dollar-cost averaging, and is a great thing to do if you want to get started investing, continue investing, or to just reduce your timing risk. An important thing to understand is that timing risk is a fundamental risk when it comes to investing and trading. Say for example you put your hard won savings in the Total World Fund; the market could possibly decline by a large percentage the next day. So rather than putting in all your money at once, dollar-cost-averaging is the process of putting in little contributions over time.


The funds I contribute to are the Total World Fund, US 500 and Simplicity Growth. The Total World is dominated by the largest companies, like as Apple, Microsoft, and Samsung. The US 500 is dominated by the same companies minus the likes of Samsung and Toyota. The reason I have these two funds is a combination of them having the lowest fees, and that I am a long-term believer in the benefits of economies of scale, and the future of the US economy. I briefly contributed to the Emerging Markets Fund last year, which is dominated by Chinese companies, but I don't ultimately believe in the long-term future of China. We are seeing some debt problems there now, like we saw last year with Evergrande, the property developer. Simplicity Growth is for my Kiwisaver, and I contribute to it each week. I contribute the minimum amount ($1043), to get the maximum Government Contribution of $521 each year. It has been to their detriment that Simplicity , like every other NZ Kiwisaver provider, have gone 'ESG' and excluded oil and gas (and weapons) companies, because they have been the market outperformers this year. Anyway, that is the reason I contribute the minimum, because I know that (excluding the free Government money) I can do better with my ETF funds and individual stocks.


The point I wanted to make in this article, is that dollar-cost-averaging is a good thing to do. For someone like me, who is usually fully invested, it is good to know that I still have regular contributions (from my income) going into the market. My contributions are also free, i.e. there is no brokerage fee..


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