Posted by: mylittlesnow | June 19, 2008

Dollar Cost Averaging… the best time to verify this theory is now!

I have been investing in unit trust for probably about 3 years now and maybe the time is right for me to write something about it to share my experience to date. Well, considering the fact that the market is down at the moment, it’s not surprising that for those who is holding on to their investment, especially on equity funds, you should be losing some money. Heck, i’m not even sure why there’s a sudden drop in bond fund performance sometime around last month. I thought bond fund should be quite a stable investment and i was only aiming to get a return at least higher than our FD rate of 3.7% pa. But no, even bond fund is not generating the return expected, not only for the past year but maybe past 2-3 years.

So in these trying times, is it the right time for us to take our money out and just put the money in a safe instrument like FD? Or should we continue to practice what every single unit trust fund agent is preaching, which is DCA! Yes, Dollar Cost Averaging. The idea of DCA is to buy at a specified time interval no matter when the market is up or down. But, the question is, should the market continue to go down on a free fall, are you going to be a dum dum and keep on investing the money on regular basis? What the agents are claiming is that we cannot time the market. True, but then the KISS principle when it comes to buying stock is buy low and sell high, as simple as that. So does it make sense to buy or add money into trust fund when you know that the market is not going up? Lets face it, unit trust (equity) is almost exactly the same as stock market. The only difference is you’re paying some professional (supposedly la) to help you manage your money and help you to decide which stock to buy and furthermore, in a trust fund, all of us can collectively pool our money together and buy some expensive stocks. That’s the idea of it. So if a market crashes, you’ll definitely see the price of your unit trust fund dropping like bird shits as well.

So what’s the conclusion? Well, i’ll still give the DCA strategy a benefit of doubt and i will still maintain it for now. I’ll wait 2 more years and by that time, i should have invested in unit trust for a total of 5 years. But my input is, if you have some time on your own, just do the DCA yourself instead of setting it as monthly auto deduct. That way, you can stop your investment when the market is like a humpty dumpty. Don’t worry if you missed the opportunity when the market goes up because in another way, your losses are minimized as well right? Because the units you are currently holding on to have already increase in value as well. On contrary, if you totally don’t have time at all to monitor the performance of your unit trust, then it might be a feasible idea to practice DCA, or you can wait another 2-3 years and hopefully by that time, i can prove the theory of DCA right. Currently, even though i’m putting money aside every month, i’m still making a loss as generally, most of the stock markets are down but if the market ever goes up, then we’ll see how. I am not an expert but at least, this is something i would like to share and maybe i’ll get some inputs back as well…

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Responses

  1. The unit holders must monitor the funds performance and set a realistic rate of return, don’t be greedy in a volatile markets. The DCA will not work during period of high volatility.

  2. Tan,
    thanks for the feedback… personally…i am not sure whether it will work or not… based on theory explanation, i think it might not work….
    but will it work during high volatility…i am not sure as well…
    the thing is…i’m just trying out this method for now and i’m not putting all my money on that..just the minimum amount of RM100/month and see how it works out after 5 yrs…i’m sure 5 yrs is a good period to test out whatever volatility out there… correct me if i’m wrong…

  3. DCA works very well during high volatility, as you are buying the units very very cheap. Believe me, this is the magic of MF. I have been investing for the past 13 years but not losing a single sen. If one keeps on waiting say like yeoh, then you already lost 5 years where by right one should have made a fortune. Of course if one invest peanuts then u get monkeys. if one does not believe, its better to keep the money in fd. Investing is not for the faint heart. To make money one have to take risk and at the end of the horizon one can light/fortune. There nothing in this world where one can make fortune in 2-3 years. Any type of investment needs time and time is money.


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