Would it be wiser to regularly invest a portion of your income or to accumulate that portion for a period (e.g. 3-6 months) and invest in lump sum? - Seedly
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Anonymous

Asked on 04 Jun 2020

Would it be wiser to regularly invest a portion of your income or to accumulate that portion for a period (e.g. 3-6 months) and invest in lump sum?

I have always seen the discussion between investing in lump sum Vs DCA and lump sum seems to be better but that it assuming the person has a big amount to begin with.

However, what if it's the scenario that one do not have that lump sum but usually invest a portion of the income. Would it better for me to accumulate my investment portion in a savings account first before investing it at the 3 months mark to benefit from the lump sum method?

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Hi anon,

As you have pointed out, lump sum is for someone who has a sufficient amount of capital. Even if you are accumulating over a period of 3 months or 6 months, given the nature of the long term trend of the markets, you are still doing DCA. In fact, RSP can be done quarterly instead of monthly for asset classes such as unit trust.

In the end, the important thing is to choose the right method for your preferences and have the discipline to follow through.

I wrote an extended answer regarding DCA vs lump sum which you can read here:

https://seedly.sg/questions/would-you-recommend-dca-or-lumpsum

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On Dollar Cost Averaging and Lump Sum Investing:

https://www.morningstar.com.au/learn/article/the-dollar-cost-averaging-myth-why-lump-sum-i/197410

Like dieting, the best investment plan is the one you can stick to the long term. Most investment plans fail because they are not sustainable. Find which program works best for you which you can stick too, stay disciplined, and the results will follow.

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Frankie Rappaport
Frankie Rappaport
Top Contributor

Top Contributor (Aug)

Level 9. God of Wisdom
Answered on 04 Jun 2020

We can never know what is a "start of a bull market" or predict any cycle or phase.

most important is to reduce absolute and relative trading fees.

to invest only every quarter or semiannually (or even once a year) is no problem for a longterm buy & hold investor

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Zi Shuen
Zi Shuen
Level 6. Master
Answered on 04 Jun 2020

Lump sum is better when it's at the start of a bull market, and DCA is better when it's at a bear market.

At our current state, DCA is the best.

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You need to know your investment objective and risk appetite. Thereafter, we need to know the type of assets that you are investing into. Above all, there is no right or wrong answer. Instead, it is more about what you are comfortable with that matters. Here is a comparison between the two methods: Lump Sum vs Dollar Cost Averaging

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

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