Dollar Cost Averaging (DCA) is Really Your Mantra

Let’s dive deep into an approach that brings free money.

It could be very difficult to save or invest. But the mind gets used to an activity based on smaller increments (at least on a general sense).

What is wealth? An abundance of valuable possessions.

Have you ever thought about getting free money? Don’t get me wrong, buying funds, indices, spending a fixed amount on assets regularly technically increases your wealth overtime.

When you buy an index, you own a portion of all listed assets in the index. You will only lose money when the overall market fails. But after distressed times, the economy gets corrected and the index revives again.

DCA really takes you all out on returns and capital appreciation overtime.

Just as its easier betting on a team winning than on a player scoring during a match, it’s easier earning returns on an overall market than single handily picking a competitive business to do the work for you (assuming you don’t want to get bogged down on narrowly selecting stocks).

Various markets offer the opportunity to increase monetary value ranging from NGX all share index, S&P 500 Index (SPX 500), Dow Jones Industrial Average (DJIX), Nasdaq Composite (COMP), FTSE 100, Hang Seng Index, CAC 40, Nikkei 225 down to banks’ mutual funds such as Stanbic, Vetiva, FBN, Vantage, and so much more.

In line with observing trends, wealth movement across prominent indices have been terrific.

The Dow (DJIA) grew from $23,775.27 in April 2020 to $37,983.24 entering 12th of April this year. S&P 500 has had a 4-year compound increase in wealth with a value of 15.9%.

CAC 40 added 7.9% to its 2019’s value of €5506.4. Though, the Hang Seng Index currently has an 11% downturn (still under a 5-year spectrum CGR), when China’s economy gets revived up (subsequent to the strict covid 19 policies, regulations, rising interest rates, and Russia’s war with Ukraine), the index should trail forward. The Nikkei 225 has also climbed 124,000 points.

Looking at the U.S, the top 20 companies; from the likes of Microsoft, Nvidia, Meta, down to Berkshire, Walmart and Oracle, all welcomed an average $34.8 billion in profits, and 22% in Compound Growth Rate (CGR).

Even the top 4 from the bottom 10; with negative net returns above 60% and 500% respectively (compound growth and continuously compounded returns) still took in average $84 million as revenue (thou Calithera had $9.75 million in 2021 before its announcements on liquidation in 2023)

In Nigeria, NGX ALL SHARE and the NGX 30 tracking back to 2019 till today, have had tremendous growth in value sighting 28.5% and 23.7% respectively. (Still in compound growth rate terms)

My point is, regularly buying assets like stocks or S&P 500 or any other index, entitles you to earnings over time. Afterall, wealth involves having valuable possessions that stack up value for you.?

Every business exists to make profits, when profit is made, the fundamental value gets reflected in the market raising the value of your initial investments (earning you returns, dividends and capital appreciation). So, from that reasoning point, it’s very rational to buy indices or assets over the long run.

For example, GOOGLE (GOOG) had a market per share price of $60.89 in 2019 when it made $34 billion in profits, as of today it is priced at $158 per share; earning $73.8 billion as bottom line. If you had invested a $100 on GOOGLE in 2019, the value would be worth $259.4 as of today; a compound growth rate of 21%. ?

Home Depot (HD) was priced at $203.85 per share in 2019 while it was earning $11 billion in profits, fast-forward to 2024, it made $15 billion, and share price soared to $361.42; CGR at 12.1% ???

Looking at Nigeria; Sterling Bank (STERLINGNG), it was priced at N2.5 per share in April of 2019, as its earnings increased from N10.6 billion (right in 2019) to N19.3 billion in 2022. With all value reflections in the market, its current price is at N4.78; a compound growth rate of 13.8%

What about Wema Bank (WEMABANK)? in May 2019 it traded at N1.92 (while it earned N5.2 billion) moving on to the future after enjoying much growth, 2023 brought in N36 billion as profits.

As at 12th of April this year, the asset was priced at N7.95; given us a CGR of 32.9%

I don’t want to get biased; I could add other industries let’s say BUA foods. N69.8 billion came in as profits in 2021; setting its market price at 59 naira and 50 cents in April of 2022, afterwards, earnings increased to N112 billion in 2023; as of today, its market price per share is at N379.9; CGR of 152.7%

On average if we should select companies of any index, at least 80% of the sample would be making plans on how they could create better products and services to earn more or working heavily to serve their clients and that’s what drives future profits; eventually wealth for investors.

Take a look at Mastercard and United Health under the S&P 500.

Mastercard (MA) has been in existence for decades; serving as the payment backbone for an insanely digitized economy. It is creating a variety of payment flows, services and digital tools to speed up commerce and expand local economies.?

United Health Group (UNH) is heavily locked on building a simpler, consumer-oriented health system for Americans’ better experience and outcomes.

Under the FTSE 100, Aviva (AV) is the U. K’s leading insurer serving over 19 million customers across the UK, Ireland, and Canada. While some of its clients faced unpleasant situations in 2023, Aviva was resilient to provide accommodation, emergency payments and repairs.

Compass Group (CPG) continues to possess zero tolerance for a status quo operating model. Visioning a world-class providing contract food service business, the British multinational had a 22% revenue growth in 2023.?

NGX All Share; Seplat Energy (SEPLAT) continues its progress on the ANOH gas project. It intends to process wet gas into lean gas and Liquified Petroleum Gas (LPG) so we could have a cleaner and less expensive fuel for generating power.

I’d like to add one more; Transnational Corporation (TRANSCORP), a conglomerate into power, hospitality, oil and gas. Transcorp’s economic efforts contributed close to about 0.1% to the Nigeria’s GDP in 2023. The business takes actions on its foundation of building economic and social wealth.

Where all businesses in an index try to add as much value as possible, on an average line, market value, profits and returns gets improved, creating buckets of wealth growth for investors.

Even if you don’t know so much about the equity markets, a DCA approach towards the NGX All Share index or NGX 30 should still give you decent returns overtime. (From the standpoint that, market in the long run would reflect fundamental value; that is, profits)

In general, daily and quarterly gyrations in market value (along with GAAP reported results) affect unrealized gains. However, in future decades, as prices reflect performance, these gains should be meaningfully positive. It’s one of the reasons why DCA approach to investing is crucial.?

And don’t forget you could apply DCA to any other assets besides traditional vehicles like the Real Estate Investment Trusts (REITs), Private Equity and Debt Funds, Futures and commodities ETFs.

Certainly, there are market risks in the economy, driven by interest rates, consumer and producer price indexes, laws on capital requirements, tax reforms, pandemics, bank failures and so more. However, a last-long commitment to DCA (investing the same amount of money into assets or indexes overtime) would still keep you at the edge of sustainable wealth.

Disclaimer: apart from doing your due diligence by enlightening yourself about Dollar-Cost Averaging, I urge my readers to never risk permanent loss of capital. I repeat do not place all your available funds in the stock market. [A reasonable portion of your savings should be invested in treasuries for safety and liquidity purposes. A lesson well admired from the Oracle of Omaha]

Please note, daily market price changes would differ from reported values here from time to time; however, accurate information (rather than precise) should still yield satisfactory results provided they are well adhered to.