Two ways of minimising risk whilst still getting a good return on your investments are diversification and dollar cost averaging.

Diversification

Diversification is the technique of spreading your money across different investments in order to reduce risk – in other words, “not putting all your eggs in one basket”.

By spreading your money across a range of high and low risk investments, you can enjoy some higher returns whilst keeping the risk at a comfortable level.

Diversification also allows you to benefit from one investment sector’s good performance at a time when another may be delivering lower returns.

A financial planner has the expertise to ensure that your investments are sufficiently diversified.

Dollar Cost Averaging

Dollar cost averaging is the benefit that can be derived by making regular contributions into unit linked investments.

If you’re concerned about the investment market’s fluctuations, then dollar cost averaging could be the answer. This is a disciplined investment technique that allows you to take advantage of the market’s ups and downs.

For example, let’s assume that you’ve been investing in a managed fund for six months and have accumulated 708 units. The current price of the units is $1.00, so your investment is worth $708.00.

Month	Monthly investment	Unit price	No. of units purchased
January	$100	$1.00	100
February	$100	$0.90	111
March	$100	$0.80	125
April	$100	$0.60	167
May	$100	$0.95	105
June	$100	$1.00	100
Total	$600	-	708

Note: The example shown is an illustration of the concept of dollar cost averaging only.

You automatically purchased more units when the prices were low and less when the prices were high. Over the six months, the average cost you paid for the units was 88¢. In effect, you reduced the average cost of the units, which means that you ended up with more units for your money.