Is Dollar Averaging the Magic Pill and Does it suits Everyone?
For starters, the Idea of Dollar Averaging are suitable for people who are not interested in the price of the units, until the day they wanted to sell the accumulated units (partial or not) for profit.
(hopefully not sell in losses due to cash constraint).
1. It is a good portfolio for retirement when the tide is in your favor but we must not depend just on this portfolio for retirement just in case the market is very very dim.
2. It is good for people who want to start small and wants a decent ROI.
3. It is good for people who don't have the time to look at the market.
4. It is good for people who are savvy or not savvy in investment plus time is on their side.
(The main thing you need to know is the expenses you are incurring.)
Let's look at the STI Chart,
All the Blue Shade are the Start of a New Year.
All the Red Share are the No NO Zone to sell your Dollar Averaging Units.
As you can see from the chart, the person who are not afraid of the sell down and believe that the market will moving towards their advantage in the future will be the Winner.
If the Chart does not give you an idea, you can download the excel sheet (from the blog) and pluck in the figures to confirm your own understanding.
In a nutshell, Dollar Averaging is suitable for everyone but it is not a magic pill because when you use it in a wrong counter that can go bust, it is Game Over and that is why STI ETF is recommended because it will never go bust.
@Ambrosini Maximiliano asked: Kenji can share some advantage/disadvantage comparing these bcip/saver plans against higher dividend lower volatility counters, for example reits
Assuming a Monthly Purchase,
1. When you use Dollar Averaging (DA) to buy Reits, you get to choose the price you want to buy in since it will be done through your own brokerage.
2. You get to set your own rules (hopefully you follow them), and get to buy cheaper.
3. Lower expenses (if the DA saving plans charges increase)
4. The Dividend is Higher.
5. You can use the Dividend to do Compounding Anytime.
1. The Reits you pick fall faster then it picks up especially when it under perform all other Reits
2. You need to have the cash since you are buying by lots now (1000units).
3. The Reits might be in very bad shape and your average units price are above the market price.
Dollar Averaging Saving Plans with STI ETF:
1. The Dollar Averaging Saving Plans is Automated as long as your account have the money to purchase.
2. You get to start with a small amount and increase gradually (if you want).
3. Lower expenses (if the bank never increase their charges)
4. You still get a Dividend better then Bank Interest Rate.
5. You have a choice to study (or not) the market.
6. STI ETF will not go bust and recovery is gradually.
1. Your Expenses are Controlled by the Bank Charges
2. The Bank have the Rights to amend the Rules which sometime can create some inconvenience.
3. You don't get to compound the dividend if the bank does not provide flexibility in changing the amount to purchase at ease.
4. You don't get to choose the price to buy in since the date will do the job.
5. When your entry price starts from high, you will need a considerable time to accumulate your units price to low.
I hope these 3 parts on Dollar Averaging will benefit Everyone who understand what are their objectives.
Invest Safely Everyone!
Another Good Deed Done!