Should I invest S$100k as a lump sum or should I invest part of the budget as a lump sum and the remaining as monthly deposits? - Seedly
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Anonymous

Asked on 06 May 2020

Should I invest S$100k as a lump sum or should I invest part of the budget as a lump sum and the remaining as monthly deposits?

Assuming I have a budget of S$100k and would like to invest all of it. Yes, I have set aside funds for emergencies etc. This S$100k is purely for investments.

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Hi anon,

Traditionally, a lump sum strategy will always outperform a DCA in up markets, and we know that the markets trend upwards in time.

However, considering that you might not have much experience in investing, market volatility is extremely difficult for many to take as prices can really go through a roller coaster during the crisis.

You may consider a 2-in-1 strategy whereby you break your funds in 3 portions. 1 portion to invest now, 1 portion as a warchest for future opportunities if anyway, and the last portion can be spread over the next 3-5 years via dollar cost averaging on a monthly basis. It's a hybrid strategy that ensures you don't feel you missed out, but leaves you with monies for future lump sum investments, and also lets you DCA to reduce your volatility.

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Question Poster

07 May 2020

Thank you Elijah. This is very helpful.
Asheesh Chanda
Asheesh Chanda, Founder at Kristal.AI
Level 6. Master
Answered on 11 May 2020

While timing is very very tricky but I have amended Buffet rule as follows:

"Buy lumpsum when others are fearful, and buy DCA when others are greedy"

Also depending on where markets are, "Extend your DCA over months instead of over weeks"

So while hindsight is 20/20 in March 2020 lumpsun was a good idea and now a DCA over next 6 months would be appropriate. Do check our Kristal.ai for you USD investments. We have no management fee/commisions for first 50K USD

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Question Poster

12 May 2020

Thank You!
Frankie Rappaport
Frankie Rappaport

16 May 2020

Warren Buffet is a bit on the losing streak for more than 10 years now: https://api.wsj.net/api/kaavio/charts/big.chart?nosettings=1&symb=VOO&uf=0&type=2&size=4&sid=5411711&style=330&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=13&rand=1597854253&compidx=aaaaa%3a0&comp=brk.a&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=635&width=1045&mocktick=1
Jayden
Jayden, Engineer at ABC
Level 4. Prodigy
Answered on 12 May 2020

Since you already set aside an amount to investment, at this volatile market, best place to place long term investment will be all the top 10 traded ETFs. Just put in and peek again after 3-5 years.

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Question Poster

16 May 2020

Hi Frankie, thanks for this. You mentioned in your other post about buy and hold ultra long term. Looking at the historic data for QQQ and VGT, the prices at Jan 2010 was around USD$45 and USD$54 respectively. Assuming ultra long term means 10 years, which brings us to Jan 2020, the prices are USD$218 and USD$246 respectively. It seems like they are at the peak at the moment. If I invest in them right now, is there any room for further growth? Can I expect a similar growth (4 times current price) over the next 10 years?
Frankie Rappaport
Frankie Rappaport

16 May 2020

Hi Anon, thank You. (for me ultra longterm means not 10, but ca. 20 years and more, and of course my texts here are no solicitation, ha ha, to buy the mentioned securities, at least in the PAST they were super-successful). Thus: You are right, the mentioned ones are at their peak. But they could be reduced to a third within several days or peaking steadily more over the next 10 years. NOBODY can know this. You are right: maybe I'am too much focused on past results, which cannot predict the future, but I hope there is still some major correlation to the future. My thinking is also that the stock markets are driven to a major part by progress (technology) and the U.S. market because of it's very 'capitalistic', entrepreneur-friendly system is up to now the single most successful stockmarket place.[surely the U.S. system has it's setbacks, when this richest of all nations cannot provide universal health coverage to it's citizens...]. When passive indexing ETFs, I am convinced, are the best thing retail investors could buy into, a more wiser way, of course, would be to not expect highest returns, but to diversify much more. In the U.S. a 60/40 or 70/30 Stock/Bonds allocation was often traditionally recommended by finance institutions (mostly then in U.S. securities) as the standard procedure. I am very sceptic, that bonds (particularly corporate bonds) are still that solid for portfolio stability. Some predict a severe corporate bond crisis, because of all the debts and money printing. But who knows. A pragmatic portfolio could be f.ex.: 50% SP 500 ETF, 40% MSCI World ex-USA ETF, 10 percent physical gold. Good Luck. 2 remarkable things then as to the current crisis: 1. the Bonds did what they're supposed to do: they dipped not or just minimal. 2. The technology, prone to super high volatility, came out relatively unscathed compared to the SP500. Interesting. You could read more here: https://seedly.sg/questions/what-is-your-general-investing-philosophy-strategy
Tay WenHao
Tay WenHao
Top Contributor

Top Contributor (Jun)

Level 7. Grand Master
Answered on 11 May 2020

For myself, I'll do it 1 lump sum but diversify into different sector.

Given 100k, I'll spilt into 10 x 10k and invest in 10 different stocks in different sector to diversify and reduce risk.

Imagine you bought all on 1 sector such as aviation and tourism sector which is badly hit by COVID. This is the reason for diversification.

As for the part on DCA, I would say to continue saving up more money and together with the dividends return, try to average down on the stocks that are not doing so well.

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Question Poster

12 May 2020

Thank You!

Hi Anon,

Different strategy produces different outcomes and in terms on how you benefit from.

Dollar cost averaging helps you to benefit from volatile market when it's down so that you can purchase good investment at a cheaper price. However, if it's a bull run, expect yourself to purchase investment at a higher price too. Over the long term, you will just average out the price across the course, but might not be lower than the price compared when you invested the entire lump sum. But it helps you reduce your emotional stress when the market tank since your entire fund are not inside yet.

Lump sum strategy outperforms dollar cost averaging in terms of returns when it comes to a long term performing market. However, you have to accept the volatility of the market and see if it's bearable for you since your entire sum is invested already.

Like you mentioned, it's by all means that you can also do half half. Just take note on why you are implementing such strategy and what to expect from. Hope this helps!

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Question Poster

07 May 2020

Considering right now, it is a down market. Isn't this an ideal moment to invest a lump sum to purchase at a "cheap" price? In a way, investing is about buy low, sell high (let's forget about short selling for now)?
Aidan Neo
Aidan Neo

08 May 2020

Indeed, but we never know if the low will go lower. Of course, the main point is not to catch the bottom. As mentioned, hence if you can stomach the volatility even if the market drop and have a long time horizon for recovery, I would go for lump sum. So every strategy works differently. Like most have mentioned, You can consider hybrid too unless you are confident with your investments. All the best!
Frankie Rappaport
Frankie Rappaport
Top Contributor

Top Contributor (Jun)

Level 9. God of Wisdom
Answered on 16 May 2020

Given the corona crash, you could do it now, other option being DCA.

everything else here:

https://seedly.sg/questions/what-is-your-general-investing-philosophy-strategy

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Question Poster

16 May 2020

Very interesting read
Frankie Rappaport
Frankie Rappaport

16 May 2020

Thank You!
K
KxR
Level 3. Wonderkid
Answered on 16 May 2020

Here is a great answer and simulation over some time: https://ofdollarsanddata.com/dollar-cost-averaging-vs-lump-sum/

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Question Poster

16 May 2020

Thank You!
Summer
Summer
Level 5. Genius
Answered on 12 May 2020

I think separating out is always better. You can consider the DCA method, which is one that I personally engage in because I am not much of a risk person.

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Question Poster

12 May 2020

Thank You!
MK
Mr K
Level 3. Wonderkid
Answered on 12 May 2020

When you think that the price can go lower, it bounces back and never went down again... Buy lumpsum...??? DCA is good when price is on the way down...buy more as it goes down.

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Question Poster

12 May 2020

Thank You!
Penny Chong
Penny Chong
Level 5. Genius
Answered on 11 May 2020

If you are asking this, I am assuming you are new to investing?

My advice is that its importance to increase your financial knowledge first and understanding your personal risk appetite! This would require some effort put into research and self-reflection. Am I investing in hopes of realising it all in the future to fund my child's future education/buy a house? Or do I want it to be an alternative source of annual income that can come in terms of dividends/rental for example. Do not rush into buying popular stocks now just because they're cheap.

I would recommend investing 50% in a market portfolio like S&P500 as it historically yields 10% return and has a general upward trend. Another 50% can be other individual stocks that you like and see a potential of 10% return.

Diversification is always important. There is no reward for bearing unnecessary risks. ​​​

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

Hi,

in the current climate, it will be best to break into tranches. 10 tranches of 10k?

you also need to assess your risk and understand yourself. how much are you willing to lose? Your time horizon, your age ?

Are you in the growth team or dividend team? or both?

Have you open investment platforms?

Hope this help...hope u can reply so that i can asnwer more of your questions.

#planwithcolin​​​

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Colin Lim
Colin Lim

08 May 2020

I give 10 tranches as an example. so u can device your own strategy on how to use these 10 tranches...u can do it every month...but if 1 month...there is opportunity as market goes down...u can place 2 tranches in. I dont say u cant lump sum however it depends on your risk level and your understanding of the current situation. if you feel that the market is right and want to do lump sum, you can go ahead. i suggest probably 20 to 25 year time horizon bah...as the last few years i will always encourage my client to derisk...slowly taking out and park into lower risk portfolio. since you are both growth and dividend den your 100k can spilt into 50-50? for me, i will suggest 70 growth and 30 dividend and when i reach 55? i will slowly do 40 growth to 60 dividends... The stock market at the lowest is in March...there are still speculations about how this covid19 will drag for years and it might disrupt companies so with tranches u can buy in now....since it is still lower than the peak, and if things got worse..because of US and China again...you can place your tranches in again... all of these are samples of strategies...u dont have to follow exactly, you can tune these strategies to suit your style. #planwithcolin
Question Poster

12 May 2020

Thank You!
Wilson Nid A Break
Wilson Nid A Break
Level 9. God of Wisdom
Answered on 07 May 2020

Invest in your financial literacy first, and learn not to obtain piecemeal investment advice and tips online from others whom had no obligations to guide you throughout your investment journey. Its like a novice trying to drive a car while learning how to do via car radio.

Go to libby.com and borrow as many personal finance / value investing books out there. Only knowledge that you spent time and effort to acquire can truly belonged to & retent by you

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Question Poster

07 May 2020

Thank You!

Investment Objective

Before you start investing, it will be best to understand your objective. Here are some questions to help you:

  1. What is your capital?

  2. How will you want to invest your capital? E.g. lump sum or an amount on a regular basis

  3. How long will you want to stay invested? E.g. 10 years

  4. What is your risk appetite? E.g. How do you feel about short-term volatility?

  5. What is your objective for investing?

After we have created a well-defined investment objective and know what type of financial instruments to invest into, we look into two common ways to invest - lump sum vs dollar cost averaging. Here is a detailed breakdown between the two:

More Details:

Lump Sum vs Dollar Cost Averaging

As you can see, there is no right or wrong way to do it. Instead, it depends on your investment objectives and whether you are comfortable with the method that you have chosen.

Above all, I will suggest for you to spend quality time to do a comprehensive portfolio planning on how to optimise your wealth. This is with the purpose to help you evaluate the best way to manage your money to reach your goals.

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

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Question Poster

07 May 2020

Thank You!
YT
YT
Top Contributor

Top Contributor (Jun)

Level 9. God of Wisdom
Answered on 06 May 2020

Historically, lump sum investments outperform dollar-cost averaging.

However, if you are unable to stomach the volatility or unsure about the future, you can do monthly invesments. This method will even out the price of the share you bought over long time, and the downside is that there is higher cost involved.

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