【Feature】The Truth of Dollar-Cost Averaging and Leverage Dollar-Cost Averaging Investment-01

It will be irregular, but starting this time, for people who are investing in a regular investment alongside trading, we will post a feature article several times.

In particular, among mutual funds,the leveraged type of regular investmentis what people may wonder about compared to regular, non-leveraged regular investments, so we would like to compare that area.

First, “Pattern 01” envisions the following cases.

【Case】

How to read this table and graphs is as follows. We will keep viewing in the same way in future updates, so please master it here.

★ Preconditions: assume an index fund

① Price movement: the target index starts at 100, then trends upward and downward, and returns to the original price (so-called flat movement)

② Leverage: 1x means perfectly tracks the index, 2x and 3x mean the fund's net asset value tracks the index movements at 2x and 3x respectively

③ Regular investment amount: invest 1,000 yen every month using dollar-cost averaging

④ The graph below shows the pattern of index price fluctuations

【Results】

In this case, within the margin of error, the 3x leveraged regular investment ended up with the largest number of units purchased.

However, the 2x and 3x leveraged funds, although the index itself returned to its original price, experienced negative leverage during both rises and falls, and the fund NAV finished below its initial value.

As a result, the 3x leveraged approach ended in a dreadful result. The 2x also ended in the red.

Therefore, even if the price returns to the original level, depending on the pattern of movement up to that point, you may end up negative.

Leveraged exchange-traded funds are said to be weak in sideways markets and to erode value for this reason.

On the other hand, simply using dollar-cost averaging without leverage, even if the price returns to its original level, will result in a slight positive gain.

Later, if prices rise, all funds, including the 3x leveraged fund, will move into positive territory.

This time it was an up-and-down pattern, but the same result would occur if swapped to a down-and-up pattern.