By MoneyBees
Compare investing a sum all at once with spreading it over monthly buys on a price path you set, with the units bought, interest on cash waiting and which ends ahead.
Investing a fixed amount at regular intervals, such as every month, whatever the price. You buy more units when the price is low and fewer when it is high.
When prices rise steadily, a lump sum ends ahead because all your money is in the market for longer. DCA ends ahead only when prices fall while you are still buying. Nobody knows in advance which will happen.
A fixed amount buys more units at low prices and fewer at high prices, so the cheap months count for more. Your cost per unit sits below the simple average of the prices you bought at.
It reduces the risk of putting everything in just before a fall, and the regret that comes with it. It does not reduce the risk of the investment itself once all your money is in.
Keep it somewhere safe that pays interest, such as a savings account, fixed deposit or Treasury bills. Enter that rate to see how much it narrows the gap.
No. It uses the return and the size of fall you enter, so you can see how each path plays out. It does not forecast markets.
Yes. Twelve small buys can cost more in brokerage than one large one, especially with a minimum fee per trade. Some regular savings plans charge a flat fee per buy instead.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).