Hello Grasshoppa,

Dollar-Cost Averaging (DCA) is an investment strategy that can help reduce the impact of market volatility. Instead of investing a lump sum, you invest a fixed amount at regular intervals, regardless of the market conditions. By doing so, you buy more units when prices are low & fewer units when prices are high, averaging out the cost of your investment over time.

How DCA Works

Imagine investing RM500 into an ETF every month. If the ETF price is RM10 for one month, you’d buy 50 units. If the price drops to RM8 the next month, you’d buy 62.5 units. Over time, this approach lowers your average cost per unit, helping to reduce the risk of investing at the wrong time.

Benefits of DCA

1. Reduces Risk: By spreading your investments over time, you avoid the pitfalls of market timing.
2. Instills Discipline: Regular, consistent investments keep you on track toward your financial goals.
3. Simplifies Investing: You don’t need to worry about the market’s ups & downs. Your strategy remains the same.

How to Implement DCA

1. Choose a Fixed Amount: Decide how much you can invest regularly. This could be monthly, bi-weekly, or even quarterly.
2. Select Your Investments: DCA works well with index funds, ETFs, mutual funds, robo-advisor, cryptocurrency or even individual stocks.
3. Stick to the Plan: Consistency is key. Stick to your plan regardless of market movements.

DCA in Practice

In Malaysia, many platforms support DCA. Robo-advisors like StashAway & Wahed Invest, for example, allow you to set up automatic, recurring investments. Some local brokers also support DCA for stock or ETF purchases. To apply DCA in practice, you can set auto-debit based on your preferred amount & it will auto deduct the amount each month. Once you have an extra allocation to invest, you may increase it accordingly as well.

OSS!