Is Dollar Cost Averaging useful for stocks?
Referring to my friend’s post on “Dollar Cost Averaging is Stupid?“, one question that came across my mind – is dollar cost averaging or DCA also applicable for stock investing?
We all know that most mutual funds/unit trusts are based on DCA concept since they encourage you to pump in money every month. So if the market goes down, you will use the money to buy the units at a lower price and when it goes up, you can sell them for profit. Remember the standard “buy low, sell high” concept and DCA is based on it.
The important thing is to be able to hold it for long. Otherwise, DCA will not work.
What about stock investing? Can DCA work? The answer: it depends on 2 questions:
- How long are you willing to hold? DCA does not work most of the time for contra-based or short-term investors.
- Are you sure you are buying into something worthwhile? DCA can bring you down if you are using it on something useless.
By answering these 2 questions, you will be able to know if DCA can work for you or not. Always remember that in investing…be it stocks or mutual funds, it pays to be patient. If you are sure the company you are investing has good prospects and healthy cashflow, and if you are willing to hold for 3-5 years, then you really have nothing to fear even if the current stock market plunges (*touch wood*).
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Comments
@ ChampDog
Actually, it can apply to gambling too. If you go to a casino and play roulette or blackjack (only 1 game, same table), and if you lose, you can still win it back sometime later if you keep placing bigger n bigger bets. Yes, you will surely win it back but the question is – how long can you last? It might take you 2 days – 1 month. Can your $$$ last that long?
I think it applies to everything except that for investment, we can do our research prior to this DCA but for gambling, it’s all LUCK. 
Anyway, this is just an example, don’t go Genting and gamble your money away because of this. LOL.
Hahaha… honestly I’m also using a similar technique in Genting. That’s why you can see there is a maximum limit that you can bet in each table.
I usually bet small, so no need such big amount of funds. I play roulette and the changes to win > 85% but I need 5 token to only win back 1 token. My own invented technique. 
ChampDogs last blog post..Dollar Cost Averaging is Stupid?
@ ChampDog
Mmm, maybe you can give me some tips next time, under the table. LOL.
Just kidding. I hardly go Genting, not to say the casino
Yupe, hold it for long and only if it goes up in future. But, it is matter of whether you can hold for that long or not OR simply do you have enough money to hold for that long?
I think it can applied to anything as long as it is an investment.
ChampDogs last blog post..Dollar Cost Averaging is Stupid?