facebookWhy do people do DCA (dollar cost averaging) as an investment method if they lose more on fees this way making many trades? - Seedly

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Anonymous

08 Jun 2021

General Investing

Why do people do DCA (dollar cost averaging) as an investment method if they lose more on fees this way making many trades?

Versus investing lump sum amounts after saving across time

Discussion (7)

What are your thoughts?

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Rais M

06 Mar 2020

Accountant at SME

When you invest a lump sum, you actually lock yourself at the market price you invested. For example, at $3. Regardless of the market conditions, you will make money as long as the share price is more than $3. Or lose money when the share price falls below $3.

When it comes to DCA, you are being conservative as no one can time the market. You will get to own more shares when the market goes down (when they are cheap), and own lesser shares when the market goes up (when they are expensive). Over the long term, there is a possibilty that your average share price might be $2.80 (if the market performs badly over long term), or $3.20 (if the market performs well over long term). You are in fact spreading your risks over the period of time you buy the shares.

And of course, we will also need to look at situations whether the person has the lump sum of money to begin with or could only do DCA progressively.

This is because nobody can time the market, so therefore by doing dca, you will be taking all the emotions out of the picture and invest consistently which should produce higher returns over the long term.

Andy Sim

06 Mar 2020

HR Professional at a Financial Institution

Because no one is able to time the market, so people do DCA to lower the total cost of buying a stock/ETF. They believe the benefits of DCA outweighs the costs of trading fees.

Another issue with lump sum investing is not many people have lump sum to start with. People will tend to enter the market at a low point but that's timing the market already, who can really know when the market is low?

Good question.

this depends on the single amounts invested, negotiations with your broker,

but finally on the commission fees.

When they are already 0.00 USD since 10/2019 with U.S. brokers like TD Ameritrade or Charles Schwab (among others), there should be no objection to do that.

Zero commission fees will also come to Singapore one day in the not so distant future.

That said, there could be even a grey zone for positive commission fee-Singapore brokerage situation, when the average monthy stock price increases are higher than the relatively high commission with monthly investments of small sums mentioned correctly by You. From a pragmatic point of view I feel that quarterly or even only semiannually adding of investments is completely O.K., so I also favor Your lump sum approach.

bye bye!

Loh Tat Tian

01 May 2019

Founder at PolicyWoke (We Buy Insurance Policies)

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

assuming your investment ca...

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