I’m thinking about seriously investing with Syfe. Is DCA better or should I invest a lump sum amount? Should I change my risk level to get better returns? - Seedly
 

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Asked by Anonymous

Asked on 04 Sep 2019

I’m thinking about seriously investing with Syfe. Is DCA better or should I invest a lump sum amount? Should I change my risk level to get better returns?

I've already invested $200 to see how it performs. Thinking if I should start investing $100 every month? My risk level is now 15%. Thanks! 😊

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Dhruv Arora
Dhruv Arora, Founder & Chief Executive Officer at Syfe
Level 6. Master
Answered on 04 Sep 2019

Hello there! Thanks for choosing to invest with Syfe. DCA and lump-sum investing each has their pros and cons, but both are preferable to just holding cash and waiting on the sidelines. So, kudos for starting your investment journey!

To answer your question, let me briefly outline the pros and cons of each approach. With lump-sum investing, you’re essentially trying to guess what’s the best time to enter the market. If you’re lucky, you could have invested all your money just before a big market upswing. But there’s also the possibility that you could have invested right before a market downturn, potentially wiping out a significant chunk of your portfolio value.

With DCA, you avoid the risks of lump-sum investing since you end up investing smaller amounts during both good and bad market conditions. Over the long term, your returns average out to mirror the overall market performance.

Which approach to choose depends on your financial situation. If you don’t have a large capital now, DCA is a solid choice since it allows you to start investing earlier, even if it’s $100 each month. The longer you invest, the more money you will have, thanks to the power of compounding. But if you do have a sizable amount of money to invest (after setting aside your emergency fund, buying adequate insurance, paying down high-interest loans), research by Vanguard shows that on average, lump-sum investing is better than DCA two-thirds of the time.

As for the second part of your question, we don’t advise changing your portfolio’s downside risk level in response to short-term market movements. During the risk assessment you took before investing with Syfe, we’d have recommended a portfolio that fits your unique risk appetite. Your downside risk level should depend on your risk appetite, and not just on returns. Generally, you may find that your risk appetite has changed after certain life events such as a new addition to your family. In such cases, you may re-evaluate your risk appetite by taking our risk assessment again. Alternatively, you may speak to our Syfe expert for more personalised advice.

Hope this helps and wishing you all the best in your investment journey :)

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JW
jiajing wang
Level 5. Genius
Answered on 04 Sep 2019

There is no absolute guarantee that you will definitely get better returns if you up your risk level.

Your risk level is also tied to your tolerance also.. If you cannot handle short-term loss then don't up your risk level.

DCA is better as it allows you to buy in at the same time of the month regardless of price is low.. Eg: assume $100 for 100 units at 6 months compared to $100 at 98 units, 103 units, 110 units, 95 units, 115 units, 99 units..

You will see that u will buy in 3 more units using DCA

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