Regular Shares Savings Plans (RSS/RSP)
Asked on 04 Jun 2020
Issue is because when price goes up, your average price will be higher and nearer to current price. hence less gain. Worse if price drop then you are losing already.
Hi Anon, you are absolutely right! From what I understand, it makes sense for DCA when the market is going down too and not just going up. Because like what you said, when the market is going up, you are buying less and less with a fix sum of money.
Although we wont know what the market will look like in the future, based on history, markets go up more then they go down, thus went the market is going up, it might be better to consider doing a lump sum investment.
Having said that, some of us might not have the capital to do so and thus sticking to a RSP will be a good way to invest for such individuals.
The RSP strategy takes root from the Dollar-cost averaging investment strategy which aims to reduce the impact of volatility by investing in lump sum or in huge volumes. To better illustrate the power of dollar cost averaging in contrast with investing lumpsum , it is usually assumed that the lumpsum amount is divided up equally across a period of say 12 months to achieve the RSP or DCA strategy. This makes for a fair comparison with investing lumpsum at the start of the 12 months. Of course when it comes to actual investing, you are free to modify the RSP strategy and "double down" when prices are below average or near 52W Low or something.
The idea of dividing up investment across regular periods of time in the RSP strategy(e.g monthly) is to ensure you always take your chances with time in the market regardless of the performance of the market because no one can accurately time the market.
If your research or sentiments tells you that you should be taking more chances with a sharp drop in prices, by all means you can "double down" on that opportunity. However, in times whereby prices go up, you should also stay invested perhaps by putting in a smaller sum or your regular sum. In the long run, you will realise it will pay off to be invested more heavily than trying to time the market all the time.
TLDR: Time in market beats timing the market
05 Jun 2020
06 Jun 2020
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