The Power Of Compounding & Dollar Cost Averaging

 

Dollar-cost averaging is an investment strategy in which investors divide the investment portion in the same amount regularly (eg every month) regardless of the value of the asset.

If throughout your career (30 years) you always set aside a certain amount of money to invest regularly, what strategy do you need to do and what will the end result be like?

With assumption :

• Your saving budget is 1 million per month.
• Investment growth potential of 12% per year (this is excluding dividends)

OPTION 1

If we save consistently 1 Million per month in just one year and are allowed to grow continuously.

Year To	Balance
5	21148100
10	37,270,179
15	65,682,789
20	115,755,517
25	204,000,773
30	359,519,065

Then your investment can grow to almost 360 million. Or do you want something even better? Let's have a look at option 2 :

OPTION 2

Consistently saving 1 Million per month for 30 years throughout our career. Approximately how much will we get in year 30?

Year To	Balance
5	85,382,269
10	235,854,999
15	501,039,365
20	968,384,826
25	1,792,007,214
30	3,243,511,278

Then you have the potential to have an enormous investment of nearly 3.25 billion. You want even bigger? See option 3:

OPTION 3

As in option 2, but every year you increase the investment budget by +10%. Example: The first year 1 million per month, the second year 1.1 million per month and so on.

Year To	Balance
5	102,030,891
10	344,135,063
15	871.125.420
20	1,961,428,993
25	4,143,120,887
30	8,407,069,341

The results you can get reach 8.4 billion. Only by increasing your budget by 10% every year, without realizing it, your investment results can be up to 2x more than the results of option 2. And this also doesn't count passive income, you know.

Let's try to calculate the dividend every year:

Year To	Balance	Annual Dividend
5	102,030,891	4,081,236
10	344,135,063	13,765,403
15	871.125.420	34,845,017
20	1,961,428,993	78,457,160
25	4,143,120,887	165,724,835
30	8,407,069,341	336,282,774

If you invest in shares of good companies that always pay dividends regularly (assume that the dividend yield is 4%), then you can potentially have annual passive income like the one in the table.

* Disclaimer : Asset growth can always fluctuate according to market and economic conditions. The things presented above are illustrations based on the assumptions that have been submitted .

Just by looking at the illustration, you will be tempted, are you still sure you don't want to save shares?

Let's save shares with GaleriSaham through the TRIMA application and enjoy various facilities from GSPRO membership. Click here for more info.

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