I'm planning to invest $50K in Singtel through DBS Vickers. Is it better to invest $50K at once or split it into two tranches of $25K each? What are the pros and cons? - Seedly
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Anonymous

Asked on 07 Jun 2020

I'm planning to invest $50K in Singtel through DBS Vickers. Is it better to invest $50K at once or split it into two tranches of $25K each? What are the pros and cons?

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Ng Wei En
Ng Wei En, Analyst at Mastercard
Level 6. Master
Updated on 07 Jun 2020

Not going to give you stock picking advice here but I hope you think of the following few points before deciding on Singtel. You may think that prices are depressed now and it is a good time to buy LOW now. But the more important question to ask yourself is what bullish drivers are there to push prices up other than a recovery in economy? Are they intending to make accquisitions that value-add to the business? Are they getting into 5G with a profitable business model? Once you have established your investment thesis, then we move on to the next question:

To (1)lumpsum 50k OR to (2)DCA and split into 2x25k?

Keep in mind the following:

  1. Depending on the degree of confidence and the conviction you have in your desired entry price, this will guide you towards which will be the better option.

  2. Ability to average down in the event prices go against you and your investment thesis remain unchanged. If you put the lumpsum 50k and prices drop but you remain confident of a recovery, can you afford to cough out say a 10k or 20k to average down? If you can't then you'll miss a good opportunity.

  3. Investing does not begin and stop at clicking that "BUY" button. You need to have a plan. (1)Entry price (2) Backup plan to average down if necessary, (3) Take profit strategy - whether to take full profit at a given price or partial profit at one price and remaining profit at a slightly higher price. (4)How to cut losses if things go wrong- At which price point will you forego your investment and realise a loss?

Consider the above 3 pointers and I am sure whichever decision you make, whether to lumpsum 50k or split into 2x25k, will be the most informed decision you can take, and thereby the best decision.​​​

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Colin Lim
Colin Lim, Financial Services Consultant at Colin Lim
Level 7. Grand Master
Answered on 07 Jun 2020

May i ask why choose Singtel? did you do your research?

In fact you can put money into better stocks.

Anyway, you can lump sum the whole 50k if you are sure that the stock will continue to head north or other 2 tranches of 25k each...

Outsider wont be able to advise you as you will be the 1 to make the decision.

Pros of lump sum now is, if it is now rallying up your lump sum will reap the rewards... But if it takes a couple of years to get back to the peak or takes years to recover... Your lump sum is stuck for a long time.

2 tranches of 25k each is to give yourself some leeway in case the market goes down again... You can average down.

With the recurring of covid19, you might not know what will happen...

For me, i do in tranches.. But not on a single stock. My tranches is park into different stocks.

What i did was in Mar, i invest 20% of my funds to few stocks... And in April, i inject new funds into another stocks, in May i did the same... I did my research and see which stock is undervalued before going.

My current portfolio lies heavily in US stocks probably 50%, my SG stocks are 35% and my Hk/china stocks is around 15%.

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Anand
Anand
Level 3. Wonderkid
Answered on 07 Jun 2020

With the stock market being as volatile as it can be - it will be highly recommended to buy in parts. Split the investment into 4-5 parts (can be more or less parts depends on your risk appetite) and the. buy. This way, you can average your price if the stock goes down.

There is always a risk - if price goes up from tomorrow then your subsequent purchases will be costlier.

Decision is based on the amount of risk you’re willing to take.

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Alex Chua
Alex Chua, Freshmore (Engineering System Design) at SUTD
Level 6. Master
Answered on 10 Jun 2020

I will try my best not to repeat what other people have mentioned. Please don't just think twice but thrice about your decision in this volatile market.

WHY SINGTEL? How do u see Singtel in 10 years?

There are a lot of other undervalued/ better stocks

I would also highly recommend you to rethink about your portfolio. 50k can do a decent diversification of your portfolio to reduce your risk of losing money. How much can you afford to lose? If you can't stomach the loss, reduce them to counters of 5k to 20k each. Furthermore, reducing the size of investment could potentially jump into opportunities in which you could otherwise do when u put in a lump sum

Now to answer your question between investing lump sums vs 2 tranches.

Assuming you have a bullish outlook of the stock,

pros of lump sum: you profit more by ___?

cons

: you lose more by ___? + how much more do u need to earn back your loss?

pros of splitting into 2 tranches:

  • less loss as compared to lump sum (bearish economy)

  • more chance to jump into opportunity if the market price is lower than your entry target price

Cons

  • I guess you profit lesser

Thus, from this comparison and considerations from Ng Wei En, I believe you can see which is better over another

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Firstly, you need to know your investment objective and whether you are invested into the right asset that is capable of long-term goals. Thereafter, you need to ask yourself whether you are able to tolerate short-term volatility.

In essence, one of the difference will be the entry price. By splitting your purchase over two different period, you average the entry price.

Since we won't know how the future price will be like, there is no guarantee that one method is more superior over the over.

More Details:

Lump Sum vs Dollar Cost Averaging

I share quality content on estate planning and financial planning here.

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