If i do DCA on stocks, doesnt it overall incur more cost due to each transaction fee incurred? If yes then why ppl still prefer dca? - Seedly
Ā 

Investments

Stocks

Asked by Anonymous

Asked on 29 Apr 2019

If i do DCA on stocks, doesnt it overall incur more cost due to each transaction fee incurred? If yes then why ppl still prefer dca?

1

Answers (6)

Sort By

Most Upvote

  • Most Upvote
  • Most Recent
Gabriel Tham
Gabriel Tham
Level 8. Wizard
Answered on 30 Apr 2019

You can lower your frequency of DCA to incur less transaction costs.

You can DCA on monthly, quarterly, bi-annually, or even annually. See which frequency suits you and which one will yield a lower transaction cost for you.

0 comments

1

I believe most brokerage firm in singapore charge a fee via % and will also have a min fee.

Assuming your transactions fee percentage are always above the min fee, you will not incur more costs as the costs are always a percentage of your transactions.

However if all your transactions fees are not above the minimum fees, you will definitely be adding alot of costs in percentage weightage to your transactions.

For example if you were to invest 500 monthly with phillip, you will have to pay the min fee of 10 SGD as 0.12% will be 0.6 SGD only. In this situation, your fee percentage has now shot up to 2% (about 17x more than 0.12%).

Investors will prefer DCA as it is a good strategy to average your costs in a volatile market. (Of course everyone has their own reasons) However it is always important to count your investment costs too!

Most of my clients do monthly DCA with me. If they do it via their own brokerage, they mainly do it twice a year as that accumulated amount will be enough to prevent their fee percentage from shooting up.

0 comments

1
Tan Wei Ming
Tan Wei Ming
Level 5. Genius
Answered on 11 May 2019

Time in market is better than timing the market. We do not have perfect foresight that the moment we buy into a stock it will rise.

0 comments

0
Tay WenHao
Tay WenHao
Level 4. Prodigy
Answered on 02 May 2019

Hi, as what others have mentioned, usually DCA incurs higher charges but the pros about DCA is that you do not need to time the market.

Regarding the transaction fees, as what clarence have mentioned, if your transaction fee percentage is higher than the min transaction fee it wont make a difference.

You can consider OCBC BCIP which has a min sales charge of only 5% (or 0.30%) which means that if your DCA is about $2000/mth or quarter, the sales charge is $6. (Lesser than alot other bank min trading fees)

0 comments

0

It really depends on the DCA fees. Also there are some considerations.

assuming your investment can make 6% p.a, while fees take up 1%, you gain overall 5%.

compare to you need 1 year to lump sum, but the fees are 0.25%. Though you may miss out on some down period. Your gains may be 5.5%. In this way, you are not gaining much too.

most people who opt for DCA try to keep to a certain percentage of fees (or minimum transaction sum), hence it make sense as Long as the fees are not over 1% (roughly double of lump sum).

0 comments

0
John Smiths
John Smiths
Level 3. Wonderkid
Answered on 29 Apr 2019

Yes, the overall costs of DCA can be higher than buying as a lump sum due to the transaction fees incurred. DCA is a way of not timing the market when you are investing i.e. increase the equities exposure in your portfolio in a gradual and consistent manner. If you are good at market timing with your investing, you can always choose not to DCA.

0 comments

0