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The Value of Dollar-Cost Averaging (DCA) in Volatile Markets

In today’s uncertain stock market, many investors grapple with questions like:

When should I enter or exit the market? Should I invest a lump sum or use a dollar-cost-averaging (DCA) approach?

The truth is, very few can accurately time the market, and even professionals often fail to consistently buy low and sell high due to short-term market unpredictability.

Dollar-cost averaging is an investment strategy where you invest a fixed amount of money at regular intervals, regardless of market price fluctuations. Instead of committing all your capital at once, you spread your investments over time in smaller increments-typically in stocks, index funds, or mutual funds.

Why Consider Dollar-Cost Averaging?

* Mitigates Market Timing Risk
* Reduces Emotional Impact
* Lowers Average Cost Per Share
* Encourages Disciplined Investing

DCA vs. Lump Sum Investing

Lump Sum Investing in the S&P 500 during the bull market for the last 10 years (2014-2024) yields an inflation-adjusted return of about 8% annually, whereas for the DCA strategy, the return is slightly lower.

While lump sum investing often outperforms DCA in rising markets because it exposes more capital to potential gains sooner, it also carries higher risk if the market declines immediately after investing.

DCA, by contrast, can help mitigate losses in volatile or falling markets by spreading out the investment risk.

For many investors, especially those contributing regularly from paychecks or retirement plans, DCA is a natural and practical approach. It balances risk and reward by smoothing out market volatility and removing the guesswork from timing decisions.

Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek unbiased financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

Published By:

Sofan Tan

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