Asked on 28 Nov 2019
Suppose I have 20k ready to invest. Is it better to place all into market now or to space out the market entry via DCA approach. Any view for latter on frequency (monthly over half-year, quarterly over a year? others? )
You may consider position sizing into maybe 3-5 stocks due to the size of the funds.
But not too diversified as the returns would not move the needle of the overall portfolio.
Stock A: $5000
Stock B: $5000
Stock C: $5000
$5000 as additional funds to average down if they fall below maybe 20% below your entry cost.
This is just an exampe of what you may do.
Hope it helps!
Unless you are buying into an ETF, I don't suggest a particular frequency.
Look at the valuations of individual companies and buy them when u feel that it is undervalued! Keep some cash 10-20% in case of better opportunities!
I'd split my funds into 3 parts, one to go in now, one to DCA into the market monthly over say, a year, and the last one third as a warchest if things go south and I can buy cheaper.
Of course, this assumes that what I'm buying into is something that I've done my research on and is fundamentally good.
DCA can also be done quarterly, but I would say that doing it over a year is more of an ad-hoc top up to the portfolio rather than a DCA.
Interesing question - Had the same exact question last time as well.
For DCA, I kinda call it the "Don't Care Attitude" of investing. Basically, whether the market is up or down, you just put a fixed amount of $ every month/quarterly/half yearly (depending on you). The rationale behind this is in the long term, your investment will average out and provide a decent return.
For Lump Sum investing, well this should only be applied if you are super convinced of the stock you want to get, believe in the long term, and meets your valuation criteria, and then you can go for it.
However, there will always be a risk involved right? To mitigate this, I would recommend investing in tranches, for example if you have $15K SGD, you will deploy $5k SGD first. When the stock price drops by 20%, review fundamentals. If all okay, deploy the 2nd tranche of $5K SGD. And finally if it drops 40-50% and fundamentals are still firm, last tranche. That way, you are averaging down on a stock that you know in the long term will eventually rise!
If you have the knowlegde, staying out of the market is the worse thing to do. Most money was made by staying in the market!
If you're new, invest in courses and books to learn and aquire knowledge will be the 1st step.
If you do not want to spend too much time monitoring the markets, then do it via the DCA approach.
However, if you are looking at a particular stock and want to go all in now, then put in 5-10k lump sum upfront.
The underlying question on to DCA or Lump Sum is what we think the market will do.
If we think market will keep rising, the earlier we get in, the better. Lump Sum.
If we think market will fall, wait until it bottoms, then Lump Sum.
If we think it will fall but dunno when it will bottom, DCA in the hope that we will catch some of the bottom.
Time frame for DCA? Depends on how long you think it will take for the market to bottom.
There is a Vanguard study that you can find on Google about DCA vs Lump Sum. In summary, Lump Sum is better 2/3 of the time.
DCA is for people who don't want to spend too much time looking at the market.
Usually the method is to DCA on the cheapest option and then hold onto it for a long long time.
If you want to put a lump sum in, then you must be ready to spend time and effort understanding the investment. Current market situation dictates that most investments are overvalued now.
Hence, with the emergence of alternative investment solutions and strategies in the chase of higher returns.
Unless there is a very good reason for an opportunity, I will not invest a huge lump sum now.
But to answer your DCA part, if I have to choose, I will choose monthly.
I prefer the DCA method of investing because it helps to reduce the effect of volatility in the investments. If you have a particular investment plan in mind, you can put in some amount, say 5-7k, in a lump sum and save the rest for making use of DCA. For implementing DCA, I prefer a monthly option.
I work at Kristal.AI, and it's my passion to evaluate various upcoming investment opportunities. Hope you find this helpful!
If u do not want to time the market, you should dca into the investments as it takes any emotion out of the picture.
Anyway is possible. Having the current market dips,
this random situation is a good entry point, you could
invest 50% now and 50% in 6 - 8 weeks.
But anything is O.K. at this scale.
Reading a little on this matter, more into DCA to spread out the risk.
I will always recommend DCA because it helps to smoothen volatility risk. Given you have only 20k as of now, i recommend investing in batches of 8k at bi-monthly or quarterly intervals
I assume that you have S$20k in cash (uninvested). Hence your question should really be what is your desired portfolio at this point of time.
Comparing to somebody who is invested (e.g. 60% equities, 30% bonds, 10% cash/money market fund) and all these asset has a combined worth of $20k, you have 100% cash that is worth $20k.
You are not better off or worse off than the person who is invested. (I am assuming that the "invested" person is not investing into some illiquid bond/equiities)
Your question should then be - how should you be allocating your asset according to your financial plan.
A seedly user wrote and shared this in the seedly FB page which explains well. Have a read and go thru the comments as well. It will helps
Do a lump sum $10k (to get your feet wet), then DCA thereafter (to build discipline)
Before you start investing, it will be best to understand your objective. Here are some questions to help you:
What is your capital?
How will you want to invest your capital? E.g. lump sum or an amount on a regular basis
How long will you want to stay invested? E.g. 10 years
What is your risk appetite? E.g. How do you feel about short-term volatility?
What is your objective for investing?
With this in mind, it helps you to understand whether lump sum or dollar cost averaging will be more appropriate.
If you intend to invest via dollar cost averaging, here is an article to help you undestand how it works exactly: https://www.blog.pzl.sg/dollar-cost-averaging-singapore-does-it-really-work/
In essence, it is not a foolproof strategy. Instead, it merely attempts to reduce the price risk associated with an investment.
Either way, each strategy has its pros and cons. It all depends on your investment objective and vision for the future.
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