A Personal Finance Blog for Malaysian: Simple logic why DCA (Dollar Cost Averaging) works

Saturday, October 2, 2010

Simple logic why DCA (Dollar Cost Averaging) works

DCA works because
  • It removes the risk of going "all-in" at exactly the wrong time. 
  • Of course, you also give up the possibility of going "all-in" at just the right time, but very, very few people (and I'm talking about the pros here, too) can do that consistently. 
  • Plus, most of us have a long accumulation phase; 
  • we don't have a huge chunk of money to invest at any one time anyway. 
  • Our potential investment dollars are coming in small doses with each paycheck, making them natural candidates for DCA.
Where to apply DCA?
  1. DCA + Mutual Fund
  2. DCA + ETF (search my blog for "ETF)
  3. DCA + Investment-Link Life Insurance Policy
Please give comment if I have miss anything.