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SGX Singapore Exhange: A Guide On Dollar Cost Averaging

The Dollar Cost Averaging is an excellent way to start your investments as a beginner. Find out how it is related to SGX Singapore Exchange.

When we say investing in Singapore Exchange, many usually think of savvy investors dressed in suits and reading the newspaper’s business section. However, young Singaporeans can start investing in SGX Singapore Exchange, too. There’s no need not to be a millionaire.

SGX on dollar cost averaging

In 2015, it reduced the board lot size of SGX Singapore from 1,000 to 100. As a result, it has attracted a lot of young adult investors to dip their feet in the stocks exchange.

However, despite how inviting this chance can be, Singaporeans remained risk-averse. We are too careful not to lose our money though everyone knows that will always involve risks with investing. That is why Dollar Cost Averaging is a good way to start your investments as a beginner.

How To Invest In Dollar Cost Averaging?

DCA is an investment technique of buying shares on a regular schedule with a fixed dollar amount that will not change even if the prices of the shares do. Basically, those who use this method can buy more shares even when the price goes down and less if the price goes up. Nevertheless, the investors regularly buy shares.

For example, you invest $500 each Month in ABC Bond Fund. The prices of the ABC Bond Fund shares on your First Month of investing are as follows:

  • 1st Month: $23
  • 2nd Month: $25
  • 3rd Month: $34
  • 4th Month: $25
  • 5th Month: $29

Since each month you are investing $500, you get the following number of shares:

  • 1st Month shares: $500 / $23 =¬† 78
  • 2nd Month shares: $500 / $25= ¬† 20
  • 3rd Month shares: $500 / $34 = 14.71
  • 4th Month shares: $500 / $25 = 20
  • 5th Month shares: $500 / $29 = 17.24

After five months, you owned 93.73 shares regardless of the prices of the shares you have bought each Month. For example, if today is month 5, then the cost of shares is $29, and you currently own a total of $2,718.17 with stocks from an investment of $2,500.

Advantages of Dollar Cost Averaging

Less Spontaneity

DCA is investing regularly, and since nobody can tell the future of stock prices, it still holds firm whether the prices fluctuate or collapses. There is also no telling on when is the right time to buy. Therefore you potentially have a good chance to buy shares at the best time.

The shares usually have low prices during a financial crisis, and even the known blue ships will dramatically go cheaper than their usual stellar price. Since you regularly buy shares, you can acquire some of them before it goes up again.

Simply, DCA lessens your worry as it is a safe strategy. Despite the unpredictable wild changes in prices, you can keep calm and focus on the shares you can buy instead of thinking about the costs of your own shares dropping. Eventually, the prices are going to change.

Lessens the Risk of Buying Urges

You have given yourself a limit since you have a fixed amount each time you buy shares. There is a great risk of buying a lot of shares then a sudden downturn happens.

The Prices Eventually Go Up

Since you constantly purchase shares every day regardless of price changes, you are bound to have shares that will eventually rise over time, such as the S&P 500, which delivers returns of 9.1% per year for over ten years.

It is Accessible to Small Investors

You can invest as low as $100 each Month. You can start buying blue-chip Singapore stocks through POSB and OCBC bank, investing in blue chips, and the STI is more cost-effective.

Disadvantages of Dollar Cost Averaging

You Need to Identify Good Shares

DCA does not save you from the risk of getting a bad pick. Your research does. It is still true that you must only invest in things you are comfortable with and you have knowledge about. Take some time to read to avoid buying losing investments.

The environment of stocks is ever-changing, and if you keep on investing passively, you will not grow your investments. You will have to change your approach if you see that you are not earning anything. Choose wisely the shares you are buying and not just blindly taking a risk in unknown stocks.

Cheaper Stock

Always be vigilant with the trend. Even if you wait for the financial crisis to get better, a losing stock will be a losing stock. Just because it is cheap, you will buy it. Some shares are cheap because it is a bad pick.

Start investing today, get a personal loan from Cash Mart and invest through the DCA strategies.