For Regular Savings Plan (RSP) strategy, I feel it's useful to use it as a way to average down while the current price is lower than your average price, instead of continue buying while the price keeps going up. Am I right? - Seedly
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Anonymous

Asked on 04 Jun 2020

For Regular Savings Plan (RSP) strategy, I feel it's useful to use it as a way to average down while the current price is lower than your average price, instead of continue buying while the price keeps going up. Am I right?

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.

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Thaddeus Tan
Thaddeus Tan
Level 6. Master
Answered on 07 Jun 2020

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.

:-)

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Kenneth Lou
Kenneth Lou

08 Jun 2020

Oh welcome back!
Thaddeus Tan
Thaddeus Tan

10 Jun 2020

Thanks Kenneth! saw this question in the telegram channel :-)
Thank You!
Can you clarify
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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​​​

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Question Poster

05 Jun 2020

Yup I understand. but if we continue to invest while the price goes up, wouldn't the capital gain be reduced as the owned price is very similar to market price? unless DCA/RSP is more suitable for dividend stocks where u earn dividends while keep your capital almost intact?
Ng Wei En
Ng Wei En

06 Jun 2020

In hindsight, of course everyone will want to buy at lower prices before the next wave up. But don't forget, when prices are trending up, you have more conviction and certainty that things are going in your favour. Surely that is worth giving up some percentage of capital gains. End of the day, just be prepared to be in the game for the long haul and you will almost certainly be a winner.
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
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