You should only Dollar-Cost-Average for 12 months?

I was Googling one day about how effective dollar-cost averaging is on a general basis and I came across this very interesting article. Although written in 1997, I find it still relevant to today’s context. It talks about the amount of risk that DCA can mitigate as compared to a lump-sum investment and a study was conducted on how different DCA periods can have very different returns for the investor. The numbers show that DCA best protects your capital (in beating lump sum investments) with an investment period of 6 to 12 months.

This is very interesting because it has always been established to me that DCA should always be used as a long term approach, maybe even to outlast an entire economic cycle.

As you might have known, I have started my investment journey with DCA using the OCBC Blue Chip Investment Plan. Being 14 months into the plan now has made my final capital to be roughly $9000 all vested in the STI ETF. It seems like my returns with BCIP is somewhat aligned with this article.

I am considering to cancel this plan so that I can free up $600 per month for other stock options which I have been analyzing and monitoring for these past few months. Since I have a trading account set up now too, I can consider to buy more of the STI ETF with it and reduce my overall transaction charges. I’ll monitor for a little while more to see how things go.

Thanks for reading!

Miss Niao xoxo

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Author: missniao

Hello! I blog about financial matters and things that average people can do to have a better retirement. I want to inspire people to take control of their money and have a better understanding about it. If you are interested to know more, follow me @ missniao.wordpress.com! :)

3 thoughts on “You should only Dollar-Cost-Average for 12 months?”

  1. Ahhh, the good old Bill Bernstein website. Used to read his books & follow his website in the mid-to-late 1990s.

    He has a very good book “4 Pillars of Investing” — more of asset allocation, returns of asset classes, macro perspective — but a good read nonetheless. I think still easily borrowable from NLB.

    There’s another book “The Intelligent Asset Allocator” — his 1st book, but much more cheem, full of maths & statistics & calculus formulas — good if you’re the scientific type.

    BTW, you got the gist of that article (written by Bill Jones) WRONG.

    That “not more than 12-mth DCA” is only for LUMP-SUM investing i.e. moving a big amount of cash into stocks.

    For on-going multi-year & multi-decade investing then should simply just DCA. The concept is still sound.

    I know some people who only invest in blue chips / prime freehold properties — but ONLY in recessions. So these people will simply park their monthly savings & cash in 5-10 yr US T-bills or SGS 95% of the time. And then during bad recessions or market crashes, they will liquidate their T-bills (which have shot up due to flight-to-safety) and start buying depressed blue-chips or large-cap ETFs and even go hunting for prime properties, especially during really bad long-drawn recessions like Asian Financial Crisis or the Dot.com bust. And then they simply sit on their investments, while continuing to accumulate monthly savings in T-bills, waiting for the next big recession.

    But I find 1 problem with these people — they’re usually not fun, not adventurous, quite cautious types. And usually middle-aged & above. Hahaha!!!

    Liked by 1 person

    1. Hello Sinkie!
      Firstly, I would like to thank you for your comment. It is very frustrating to me in real life sometimes because I can’t really get any legit comments like the above from the people in my social circle. Either I don’t know the right people, or they are just not as into investing as me.

      I’ll check out those books once I’m done reading my current one ^_^. Recently dropped by NLB and realized got a lot of books written by Singaporean authors whose main content are about the CPF and insurance. Lol.

      Ah, so I see. Now it makes more sense to me that DCA is still the way to go for a longer term approach in investing. The article was merely a comparison between a lump sum investment and DCA, and I should have left it at that. :p

      Anyway, if being boring will still bring you good returns, I don’t see why they shouldn’t. I foresee a possibility of doing the same myself when I am older, lazier and less energetic to do all these research and reading :p

      Thank you once again!

      Like

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