Listed Investment Company Dollar Cost Averaging Investing Approach

Today I looked at appropriate methods on Dollar Cost Averaging Investing on Listed Investment Companies (LICs) and limiting the impact of brokerage and ensuring I can achieve regular payment intervals.

I reviewed five LICs and compared their performance with a trial investment strategy which I hope to implement in the near future:

	1 Year	2 years	3 Year	5 Year	10 Year	15 Years	30 years
BKI	7.3		20.5	15.7	11.8
AFI	0		15.2	9.5	8.4
ARG	6.6		15.5	9.8	7
MLT	3.2		18.9	12.1	8	11.1
WHF	21.17	19.42	23.05				12.28

Plotting a very simplistic approach to the strategy I assumed that for the first five years I'd aim to save $50 a week, $100 a week for the next five years and then $150 a week from there after up to 40 years. I assumed an initial deposit of $2000 and the graph below does not consider brokerage costs and assumes that the amount deposited goes straight into the investment. The results were as follows:

Obviously this best case scenario as the investment is far from accurate but does show the intensity of compounding effects over the long term.

This lead to my original thought, how does one use an LIC investment product with a Dollar Cost Averaging investment approach.

I came across a method conceptualised by a user named Codebeard at the Stackexchange.com forums who was able to provide a formula for the optimum investment time given the investment amount, deposit intervals, annual interest on bank account, expected annual growth of stock and brokerage per trade. The formula then gives you a number of deposit intervals to save prior to investing. 

Information of the approach can be found here.

The plan from here is to invest in BKI and AFI LIC shares at $50 a week initially storing money in my Netbank saving account with a low interest rate of 2.5% and an annual growth of the stock as shown above gives me a time period of 16 weeks for my deposit amounts. I have also chosen these two LICs as they performed the best when the market was in downturn and as shown in the graph above they have performed very reasonably.

The process is now under way and I'll aim to update at the 16 week mark the purchase cost of the investment and provide updates from there on when I either invest in the shares or dividends and reinvested.