In the previous post entitled "Easy Investing Strategy in Mutual Funds or UITF", it was mention about using cost averaging technique in investing in equities and funds. Cost averaging is simple investing a fixed amount to the fund at a regular interval.
To know if this strategy is really effective, let us take the case of applying this method of investment in First Metro Save and Learn Equity Fund, Inc or FAMI-SALEF. FAMI-SALEF is the mutual fund managed by the First Metro Asset Management Inc (Metrobank Group) in which the portfolio is invested in selected stocks of listed companies in the Philippines. The fund started in 2005 and is one of the mutual fund in the Philippines that requires a minimum investment amount (initial investment is P5,000 and minimum additional investment is only P1,000).
The mechanics of the investment is as follow:
1. A fixed amount of P5,000 is invested every start of the quarter starting 2006 up to end of 2010.
2. No amount will be withdrawn during the entire period. Remember that cost averaging strategy is a long term investment method.
Below is the performance chart of FAMI-SALEF during the case study period:
(click to zoom)
Even with the stock market crash in 2008, you can see that the investment almost doubled or 94.84% at the start of 2011. This is equivalent to the compound annual growth rate of 18.15%. The value presented above is already net of the sales load and management fee.
This is based on actual NAVPS of FAMI-SALEF. Can you imagine now how much can you earn by investing for as little as P5,000 per quarter (P1,667 per month)?