What Do I Dollar Cost Average (DCA) and Value Average (VA) On?

This is article first appeared in The Kiam Siap Life. You can view the original article HERE.

Dollar Cost Average, or DCA for short. Value Average, or VA for short.

One of the first few investment concepts you NEED to understand and know when you start off your investment journey! If you’re still clueless on what DCA and VA really are, here’s a simple crash course on these investment strategies and benefits, before we delve into my personal DCA & VA strategies.

What is Dollar Cost Averaging (and Value Averaging)?

Taking the definition from investopedia.com (which I feel is the easiest and best one to understand), “Dollar-cost averaging refers to the practice of dividing an investment of an equity up into multiple smaller investments of equal amounts, spaced out over regular intervals.“

By putting this into practice, I invest a fixed amount of money monthly (e.g. I set aside $1000/mth after receiving my salary) INSTEAD of putting a one-time lump sum of money at the start of the investment. (e.g. a one off $50,000)

Similarly in Value Averaging, one aims to invest more when the share price falls and less when the share price rises, while sticking to the concept of investing over regular intervals. I quote from investopedia.com again, “instead of investing a set amount each period, a VA strategy makes investments based on the total size of the portfolio at each point.”

I set up a recurring payment scheme (investing a fixed amount on a set date every month) and DCA on some products, while I use VA method; which aims to invest more when the share price falls and less when the share price rises, to invest in other products

Benefits of Dollar Cost Averaging/ Value Averaging

1. Removes the Emotional Component of Investing

And not timing the market to spot its lowest price. You buy regardless of the price of the equity and commit to it. Set up a recurring payment scheme/GIRO – salary comes in, a portion of it goes out directly to your intended equities. You move on in life.

1. Low Barrier to Entry

By DCA-ing, you essentially only apportion a sum of money (preferably from your salary) every month to put into investments. In the long run, this amount will compound and increase in size. In contrast with a lump-sum strategy, its not often that we can be comfortable with taking, say, 30% of our savings to put into equities immediately.

1. Reduces the Overall Price Volatility

By buying regardless of its price (more units when it’s cheaper, less units when it’s pricier), you essentially average out and reduce the overall price volatility. Going back to point 1, it’s never possible to know is the lowest price of an equity.

What Do I DCA/VA On?

Just as a disclaimer, this is purely my strategy on DCA/VA and how I believe in passively investing in regular intervals over a long period of time. If you think that your strategy is better (which I’m sure there will be) and swear by it, you do you. But if you’re interested in what goes on in a boring investor of a 29 year old, here goes. And no, I’m not going to reveal how much I put into each because it clouds and gives an unfair impression to a new investor.

The rule is pretty simple for me.

“DCA/VA into Exchange Traded Funds (ETF)/ Robo Advisors with already-crafted portfolios. Buy during dips into individual stocks”

I DCA/VA into 3 primary products (as of now)

• STI ETF (DCA)

• Syfe – REIT+, Equity 100, Core (VA)

• Stashaway (VA)

STI ETF (ES3)

Straits Times Index (STI) ETF. I know many of you are gonna roll eyes at me on this because it’s probably “too basic” for you. Like, what even is STI ETF when you have Crypto and TESLA gains right?

Perhaps, sometimes boring ETFs help in balancing out the risks in your investments portfolios.

For the uninitiated, the Straits Times Index is a blue chip (well established and financially sound companies) stock index in Singapore that comprises of the top 30 companies in Singapore, essentially positioning itself as a benchmark for the Singapore equities market. The STI ETF then aims to track and replicate STI’s performance. Think of it like as if you are buying into these 30 companies, hence spreading and diversifying your exposure to various stocks.

Having stopped my regular savings plan (RSP) to STI ETF in 2019 after 2+ years of DCA (because of what i thought was abysmal returns and a short sighted me), I restarted my RSP into STI ETF in May 2020 when the market started to rebound and I plan on continuing my DCA and remind myself that Time in the Market is always better than Timing the Market.

Syfe REIT+, Syfe Equity 100, Syfe Core

Robo-advisors are probably really made for DCA/VA. One of the most probable reasons why you would even want to start using a Robo-advisor would probably be because you would prefer a more passive approach rather than active approach to investing.

I have written several reviews on their products here to see why I have decided to invest in these portfolios.

Reviewing the New Syfe Portfolio: How It Helped Lazy Investors Like Me

Singapore vs International Stocks: The Case for Going Global

Syfe’s New 100% REITs Portfolio

Being able to track the market portfolio prices/graphs effectively in-app, I am able to Value Average my investments monthly. On months when my portfolio under-performs, I invest more, and conversely, when my portfolio over-performs, I invest less.

Stashaway

“Why have two Robo-Advisors then?” You may ask. I have some responses to this.

• I started out with Stashaway, so I decided to hold it and VA it every now and then.

• Using multiple robo-advisory platforms minimises any platform specific risks that might arise.

• By having a similar risk-level portfolio in both robo-advisors allow me to compare the returns.

As of now, my current risk index for Stashaway is at 18% and here are some asset allocation metrics for its current risk index.

An interesting point to note is how Stashaway allows you to adjust your preferred risk index anywhere from 6.5% to 36%. What this risk index means is that there is a 1% chance that the portfolio’s value will lose more than (6.5% – 36%) of its value in any given year, depending on your set risk index.

Closing Thoughts

As mentioned earlier, DCA-ing/VA-ing into ETFS/funds seemed like the most ideal way for me to build up a sizeable holding. Investing across various equities also allow me to spread my risks accordingly.

• Higher risk – Syfe Equity 100, Syfe REIT+ (100% REITs)

• Medium risk – Syfe Core, Stashaway (18% risk index)

• Lower risk – STI ETF

That being said, I do not undermine and discount the idea of a lump-sum strategy too, which is what I do for my individual stock picks. But that will be an article for another day.

Do share with us your take and your DCA strategies too!

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