Lumpsum investment or DCA?
This is a common question that comes up among investors. There is no right or wrong answer but for those who are not adept at timing the market or who have no time or energy to monitor the market everyday, I feel dollar cost averaging (DCA) is an easier and safer approach as it averages out the per unit cost over time. Putting aside a set amount of money for investment at regular intervals is analogous to a form of regular savings (albeit with a higher level of risk than deposits in a bank account since higher rewards come with higher risks) and helps to instil discipline. It can also help one to avoid making emotional decisions in the heat of the moment.
In contrast, a lump sum investment when the market is at a high can easily lead one to become trapped for a long time. Subsequently one may feel compelled to do DCA so as to lower the per unit cost even when the investment may not justify it.
That is not to say a lump sum investment does not have its place. Through DCA, one can expect a decent return over time if the asset is of good quality but it probably won’t make one rich quickly. In a major crisis when the market falls to a historical low, a lump sum investment can turn into a pot of gold if the market is going to recover eventually. If one does not have enough cash to invest at such a time, it can be a huge missed oppptunity. For instance, I invested a lump sum in local banks $DBS Group Holdings (D05.SG)$ $OCBC Bank (O39.SG)$ during the covid crisis and it has paid off handsomely. $Apple (AAPL.US)$ has almost doubled over the same time period. However, one should also recognise the risks involved so sizing is important; 2% of one’s portfoilio versus 100% of one’s portfolio will have different implications for one’s financial situation if the bet turns out to be wrong. It should not be money you will need in an emergency or the short term.
Disclaimer: The above is just my personal opinion. It is not financial advice or a recommendation to invest. Please consult your financial advisor before doing any investment.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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BH_6730 : Good one..I totally agree with yr approach
1994CM : I love your excellent explaination in detail.
Dadacai OP BH_6730 : Thanks bro![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
Dadacai OP 1994CM : Thanks for the support![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
aoimizu : yah man, DCA is better but I always put in more than I should![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
Still learning...
Dadacai OP aoimizu : Yes, it is very difficult to control our emotions. Thanks for sharing.
费北敬 :![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
102536116 : Regardless lump sum or DCA, I learnt through my many expensive burns that I need to do my homework first. If I cannot even explain the company business and its fundamentals, it is pure gambling/luck, hit or miss. After 2 years and I am still waiting for one lump sum to just break even, if ever.
No guarantees in life but learning more each day and hopefully at least we can honestly say we tried our best to reduce risk and exposure.
Dadacai OP 102536116 : Been there, done that. Hope you will be able to get out or that there are dividends to collect in the meantime.
Learning Uncle : dca or lump sum both have its benefit and purpose. I dca into maple reits but it's doing badly now. and I lump sum into nvda and sg banks, but it's going up. I think the trend n market also make a difference too. but I like your write up. give me some insights too. thank you dada![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
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