Archive for April, 2009

Dollar Cost Averaging, Again

I can’t stress enough how the concept of cost dollar averaging can help you to invest smarter. I found this article from Ric Edelmen’s email that is very motivating and informational. If you only read one article about investing in a year, here’s the one that you should read:

How Dollar Cost Averaging Works

Say you have $100 and you buy a stock that costs $10 per share. That means you buy 10 shares. Next month, you save another $100, which you place into the same fund, only now the shares are just $5. Thus, you buy 20 shares. What’s the average price of all your shares?

If you said $7.50, you’re wrong.


You invested $200 ($100 per month over two months) and you own 30 shares (you bought 10 shares, then 20). Divide $200 by 30 shares and you’ll find that the answer is $6.67.

Why did you think the answer was $7.50?

Because you used the arithmetic mean ($10 + $5 divided by 2 = $7.50). But I used the harmonic mean ($200 divided by 30). Thus, we’re both right — the average price is $7.50, but the average cost is $6.67. Since the harmonic mean always produces a lower number than the arithmetic mean, you have a built-in profit!


Painting-TravellingDollar cost averaging succeeds because you buy fewer shares at higher prices and relatively more shares at lower prices. To make it work for you, simply invest a specific amount of money at a specific interval. Perhaps $100 per month, $25 per quarter or a $3,000 IRA each year. It does not matter as long as you are consistent. Be sure to invest at each interval, regardless of what the stock market is doing at the moment.


In fact, dollar cost averaging helps you overcome your fear that you’ll invest at the top of the market. If you had invested $1,000 in the S&P 500 on January 1 of every year from 1965 through 2002, you’d have earned an average annual return of 10.2%. But if you got really lucky and were able to make your investments on the one day each year when prices were at their lowest, you’d have averaged 10.9% instead. But, knowing your luck, it’s more likely that you’d have picked the worst day to invest each year. If so, your average annual return would have been 9.8%.


As you can see, it doesn’t much matter when you invest when you dollar cost average. It only matters that you do invest and that you stay invested. "Timing" doesn’t matter — "time in" does.*

~excerpt from the Truth About Money by Ric Edelman


11 Comments Case Study

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There are many things that make mybrute work. First, it’s simple interface. To start challenge your friend, just put your brute name in a box and you are done. What you have to do next is just spread your link (mine is Challenge me!) and you will see your character crushing its opponent. You have 6 opportunities to challenge opponents on the first day and later it will be reduced to 3 per day.

image One addictive feature is its equipments. Once you have gained enough experience challenging others (you don’t get experience by being challenged), you will have some random power or equipment to help you in your fight. This motivation alone will keep you coming everyday to maximize your experience. You will also gain additional experience if you initiate new brute by inviting new people in.

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imageNew Idea, New way of making money

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Anyone bought Citibank share?

image My friend, Kampung Investor, recommended me to buy Citibank share. It seems like the stock is running bullish. Just wonder how many of us decided to take the ride. Has the economy found its bottom?


Fiat Money

74895_luxurary This topic came out when I was having lunch at Malaysian restaurant in Hoboken. Since I watched one of the series of Lethal Weapon, I were under impression that all money in the world is backed up by gold. I was completely wrong as it’s exactly the opposite. There is no country in this world that runs their money by gold standard anymore.

So what is Fiat Money?

Historically, money was backed by precious metal such as gold and silver. During World War 2, many nations needed more money to support their war. To overcome this, the US government printed more money to pay for military expenditures. All of these money were not backed by gold and thus called fiat money.

Is there any value on Fiat Money?

People might think that fiat money carries no value as it’s not backed by anything. While it’s not backed by gold, fiat money is valuable as it’s accepted as a legal tender by the US government. So all services, products and other assets in the US are backing up this fiat money. The stronger the economy and the financial status of a nation, the higher the value of their currency.

What happened to gold standard?

It’s dead. No government today have 100% money backed by gold. The United States stopped the conversion of dollar to gold in 1971(Nixon Shock). That means you cannot exchange your dollar into gold. If you still want gold, you need to go nearest the Tiffany & Co and buy some nice Return to Tiffany™ gold pendants.

Money is always an interesting story. We spend it every day while we get it every month. If you would like to read more about money, here are some places to start:

Gold Standard – The history and the demise of gold standard.

Fiat money – Further readings on fiat money.

How to create money – Interesting title but it’s not what you’d think

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