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I’ve decided to invest in ETFs and I think the latter makes more sense. Any thoughts?
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Elijah Lee
31 Mar 2020
Senior Financial Services Manager at Phillip Securities (Jurong East)
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Depends on what is your risk appetite and if you can control your emotions.
You could choose to do both. Start a portion on DCA and a portion in a high savings rate account. Along the way if there are opportunities, you can choose to utilize the savings.
Thing to note is the transactional costs of your platform provider. If the cost is too high and the amount of DCA is too small, the returns can be eroded away.
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Both methods work.
DCA works simply because we don't know how the markets will move in the short term (next 1-3 years). If you used a capital deployment strategy and wait for a lower pricing, what if never happens? Then you will miss the boat.
However, a capital deployment strategy will have its advantages especially if you get in a low price, as that will translate to greater returns compare to DCA.
The trick is to probably do a mixture of both. DCA consistent but prepare to add positions if good opportunities present themselves. That way you won't miss out too much. As Shaun mentioned, watch out for transactional costs which erode your returns.