The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.
Eventually, the average cost per share of the security will become smaller and smaller. Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time.
For example, you decide to purchase $100 worth of XYZ each month for three months. In January, XYZ is worth $33, so you buy three shares. In February, XYZ is worth $25, so you buy four additional shares this time. Finally, in March, XYZ is worth $20, so you buy five shares. In total, you purchased 12 shares for an average price of approximately $25 each.
To use it in Singapore market, one might need to twist the method a bit as buying unit share in Singapore is never a easy because due to the thin volume and interest and the wide bid/ask spread in the odd lot market. In this case, one passes on the balance of the capital for first month purchase to second month and so on. Take an example of one intention to use $5,000 capital to buy into stock ABC in STI market and trying to spread out a 5 month period whereby each month using $1,000 to purchase into the share.
First month :- ABC price level $0.70; $1,000 only allows to purchase 1,000 shares and a balance of $300 to roll over to second month.
Second month :- Now have $1,000 + $300 to purchase ABC which cost $0.80 and still only able to buy 1,000 shares and the balance of $500 roll over to third month.
Third month :- Now have $1,000 + $500 to purchase ABC which cost $0.75 and able to buy 2,000 shares and with no balance left.
Fourth month :- Now have $1,000 to purchase ABC which cost $0.65 and only able to buy 1,000 shares and the balance of $350 roll over to fifth month.
Fifth month :- Now have $1,000 + $350 to purchase ABC which cost $0.60 and able to buy 2,000 shares and a balance of $150.
Hence on the total one is holding ABC :-
1,000 @ $0.70
1,000 @ $0.80
2,000 @ $0.75
1,000 @ $0.65
2,000 @ $0.60
This will give an average of 7,000 @ $0.693
