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I have recently started dollar cost averaging $500 for about 2 months now, on the last day of every month. However, I have noticed that stock prices tend to be higher in the last few days. Am I doing DCA wrongly?
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Pang Zhe Liang
13 May 2020
Fee-Based Financial Advisory Manager at Financial Alliance Pte Ltd (IFA Firm)
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Elijah Lee
12 May 2020
Senior Financial Services Manager at Phillip Securities (Jurong East)
Hi Eman,
There is no 'best' time in a month to dollar cost average. What's more important is the discipline to see it through all the way for years. The idea behind DCA is to automate and reduce volatility by not trying to time the market. If you've been trying to avoid high prices, you are doing exactly the opposite of that, timing the market.
You've just done 2 months, which in the grand scheme of things, is a really short time frame. No one can ever catch the absolute bottom or sell at the very top of the market. So no, you're not doing it wrongly. Just automate the contributions monthly, and then remember to review and rebalance.
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Firstly, we need to understand the fundamentals of dollar cost averaging. In essence, it is used to reduce short-term price volatility. Since there is no guarantee on the price movement in the investment world, hence there is no way we can determine on the best way to invest. Otherwise, we won't really need to do dollar cost averaging anymore.
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Dollar Cost Averaging
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