Sometimes, we look at the price of an index or a stock and think, I wish I could have bought it at X-time and sell it at Y-time and be rich. If asked to buy now, we give ourselves excuses, such as waiting for when the pricing is right. Then the price goes up again, and then we come up with a different excuse. So your money now still sits in a low-interest bank savings account, eaten up by inflation termites.
This is called trying to time the market, and it almost always never works. News travel quick and if not acted upon the first few minutes, the current value of the stock would have priced-in the new information. You might get lucky a few times, and that’s about it.
How does one overcome this? Dollar cost average (DCA). By making regular buys, you don’t have to be concerned about the price fluctuation, unless company fundamentals change, because in the long run, the stock/index price will increase.
How often should you invest? How averaged out should I go?
- you can do it weekly/monthly, or just set a standing instruction via your bank to deduct a certain amount to the fund after every pay day.
- DCA works for AIA’s investment products too, such as Total Wealth Solutions, so that your returns are better hedged through the peaks and troughs of fund prices.
Who is DCA suitable for?
- those wanting to invest money from their monthly disposable income
I have some amount of cash saved, should I invest lump sum, or DCA?
- it can be argued that the outcome of DCA is comparable to going for a lump sum investment
- that said, humans are emotional, if we lump sum and the stock plummets, and not knowing when the price would recover, are we able to have diamond hands?
- personally, I would still lean towards DCA, investing the sum at regular intervals but not taking too long to invest them all, say for 12 months. This takes out the emotion out of investing, at the same time not letting the money sit too long in a savings account and get reverse-dollar-cost-averaged by inflation termites!
DCA-friendly platforms in Malaysia below. Do note that you have to set a specific amount, but if you wish to invest more at certain times, then it can be done manually.
- Unit trust (like Public Mutual, ASNB Auto Labur)
- Private retirement scheme
- Luno, Stashaway, Wahed
- Let me know if there’s more, I’ll add to the article and credit you.
Cheers! - wan