CandleFocus Glossary Editor
A voluntary accumulation plan, also known as a dollar-cost averaging strategy, is a type of portfolio management plan that helps investors buy more shares of a mutual fund over time. The idea behind this type of planning is that by automatically setting up a regular purchase of a certain number of shares each month, investors are more likely to pay an average cost per share that is lower than the market value per share. By doing this, investors are able to build their portfolio gradually and spread the risk over time.
The main advantage of a voluntary accumulation plan is that investors no longer need to time the market in order to purchase their shares of the mutual fund. Rather, by setting up a regular, periodic purchase plan, investors are guaranteed to acquire shares of the mutual fund at an average cost that is lower than the market cost. This allows investors to have a greater chance at realizing a larger return on their investments over time.
For example, let’s say an investor wants to purchase 100 shares of a mutual fund with a current market price of $10 per share. In the event that the price of the mutual fund rises to $12 per share and back down to $8 per share within the duration of their purchase plan, their average cost per share will be discounted to $10 per share due to the periodic purchase of the shares. This way, the investor is able to realize a greater return on their investment over time than if they had purchased all of the shares at the market price of $10 per share.
Generally, an investor’s risk is decreased when investing in a mutual fund via a dollar-cost averaging strategy as well. With this strategy, the investor is making smaller investments each month, which means they are also exposed to less risk. If the market suddenly crashes and the prices of the mutual fund go down, the investor will still be able to recover because they purchased their shares at a lower average cost than the current market price.
In addition to reducing market risk, the voluntary accumulation plan also allows investors to make more disciplined, strategic contributions to their investments. By setting up an automatic, regular, dollar-cost averaging strategy, investors are more likely to stick with their plan and build up their portfolio over time.
Overall, a voluntary accumulation plan allows investors to set up an automated, regular purchase plan for a mutual fund, helping them acquire more shares at a lower price than the current market cost. This way, investors are able to realize a greater return on their investments over time, reduce their exposure to market risk, and stick to a disciplined savings plan.
The main advantage of a voluntary accumulation plan is that investors no longer need to time the market in order to purchase their shares of the mutual fund. Rather, by setting up a regular, periodic purchase plan, investors are guaranteed to acquire shares of the mutual fund at an average cost that is lower than the market cost. This allows investors to have a greater chance at realizing a larger return on their investments over time.
For example, let’s say an investor wants to purchase 100 shares of a mutual fund with a current market price of $10 per share. In the event that the price of the mutual fund rises to $12 per share and back down to $8 per share within the duration of their purchase plan, their average cost per share will be discounted to $10 per share due to the periodic purchase of the shares. This way, the investor is able to realize a greater return on their investment over time than if they had purchased all of the shares at the market price of $10 per share.
Generally, an investor’s risk is decreased when investing in a mutual fund via a dollar-cost averaging strategy as well. With this strategy, the investor is making smaller investments each month, which means they are also exposed to less risk. If the market suddenly crashes and the prices of the mutual fund go down, the investor will still be able to recover because they purchased their shares at a lower average cost than the current market price.
In addition to reducing market risk, the voluntary accumulation plan also allows investors to make more disciplined, strategic contributions to their investments. By setting up an automatic, regular, dollar-cost averaging strategy, investors are more likely to stick with their plan and build up their portfolio over time.
Overall, a voluntary accumulation plan allows investors to set up an automated, regular purchase plan for a mutual fund, helping them acquire more shares at a lower price than the current market cost. This way, investors are able to realize a greater return on their investments over time, reduce their exposure to market risk, and stick to a disciplined savings plan.