Investing on a regular basis can boost your RRSP savings.

There are a couple of reasons why you would want to invest in your rrsp on a monthly basis rather than wait until the end of the year. The first reason is obvious to everyone, a little bit of pain monthly is better than a whole lotta pain all at once yearly.

There is a good investment reason why you would want to invest on a monthly basis that isn't so obvious. In the industry, investing on a regular basis is called "dollar cost averaging". I don't know who invented that term, or if they meant for it to be descriptive, but it doesn't really describe anything to me. "Investing regularly" is more descriptive to me.

I am going to look at three scenarios, in each scenario we invest $100 monthly:

1. one where the investment goes up steadily, month after month, starting at $10.00 per unit and ending up at $12.75;
2. one where the investment goes up, and down, up and down, starting at $10.00 per unit and ending at $12.75; and lastly
3. a horrible investment that starts at $10.00, goes steadily down until it hits a bottom of $5.00, then slowly works it's way back up to $10.00, the original price.

Scenario 1

Scenario 2

Scenario 3 Doesn't this look a little like the TSE recently?

Which is the best investment? Intuitively the first one is the best, followed by the second, followed by the third. If that's what you picked, you would be right if you had a lump sum to invest, but completely wrong if you were investing regularly.

Let's look at the numbers.

Example a) Investment goes straight up;

Month	Monthly Investment	Unit Price	Units Purchased
January	$100	$10.00	10.0000
February	$100	$10.25	9.7561
March	$100	$10.50	9.5238
April	$100	$10.75	9.3023
May	$100	$11.00	9.0909
June	$100	$11.25	8.8889
July	$100	$11.50	8.6957
August	$100	$11.75	8.5106
September	$100	$12.00	8.3333
October	$100	$12.25	8.1633
November	$100	$12.50	8.0000
December	$100	$12.75	7.8431
Total	$1,200		106.1081

Market Price = Total Units x Most Recent Price
= $12.75 times 106.1081 = $1,352.88

Profit = Market Price - Cost
= $1,352.88 - $1,200 = $152.88

Example b) Investment goes up and down, up and down, much like the market
does in reality;

Month	Monthly Investment	Unit Price	Units Purchased
January	$100	$10.00	10.0000
February	$100	$9.75	10.2564
March	$100	$9.50	10.5263
April	$100	$9.25	10.8108
May	$100	$10.00	10.0000
June	$100	$10.25	9.7561
July	$100	$10.50	9.5238
August	$100	$9.75	10.2564
September	$100	$11.00	9.0909
October	$100	$11.50	8.6957
November	$100	$12.50	8.0000
December	$100	$12.75	7.8431
Total	$1,200		114.7596

Market Price = Total Units x Most Recent Price
= $12.75 times 114.7596 = $1,463.18

Profit = Market Price - Cost
= $1,463.18 - $1,200 = $263.18

Example c) investment starts at $10 drops to $5 then goes back up to $10,
like when the market crashes.

Month	Monthly Investment	Unit Price	Units Purchased
January	$100	$10.00	10.0000
February	$100	$9.00	11.1111
March	$100	$8.00	12.5000
April	$100	$7.00	14.2857
May	$100	$6.00	16.6667
June	$100	$5.00	20.0000
July	$100	$5.00	20.0000
August	$100	$6.00	16.6667
September	$100	$7.00	14.2857
October	$100	$8.00	12.5000
November	$100	$9.00	11.1111
December	$100	$10.00	10.0000
Total	$1,200		169.1270

Market Price = Total Units x Most Recent Price
$1,691.27

Market Price = Total Units x Most Recent Price
= $10.00 times 169.1270 = $1,691.27

Profit = Market Price - Cost
= $1,691.27 - $1,200 = $491.27

The dollar cost averaging profits.

Scenario 1	Scenario 2	Scenario 3
$152.88	$263.18	$491.27

The investment that looked to be the worst was actually the best. Wouldn't you agree that dollar cost averaging, or, simply investing regularly is a pretty good way to invest?