DCA 8 years on

Time flies by so quickly and now, I've been investing for close to 8 years. It seems like yesterday that I first started lurking in the sgfunds forum, and starting to decide what is the investment strategy that I will use. It didn't take long for me to settle on using the DCA strategy to stay invested in the market.

Just a brief description of DCA. Dollar cost averaging (DCA) is an investment strategy that may be used with any currency. It takes the form of investing equal monetary amounts regularly and periodically over specific time periods in a particular investment or portfolio. By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.

However, that doesn't mean I followed strictly to the description of DCA to the letter. Not my style. :)

Basically, I practise DCA from the portfolio perspective, and within the portfolio, I practise some form of market diversification so that the portfolio will not be adversely affected due to a downturn in a specific sector. I've written about diversification some time back in the post here which you can refer to if you're interested. 

The whole rationale of doing DCA and staying invested in the market is to keep expenses low, and to be in the market so that you capture all the lows and highs of the market. Some thinks that this is the way to go, while there are others who think that active investment will generate more returns. The question is what kind of risks you're willing to take? I won't go into it in detail but you can take a look at the post here which I've written some time back where I've talked about Risk vs Returns.

The reason why I went into DCA is because I do not have the time to track the market on an active basis. I chose to "invest" in my job instead and so far, the returns from my job far outweigh the returns from the market. Key thing to remember is to not only listen to those percentages being thrown around. The final figure matters. Do you prefer a one-off 10% profit out of $1,000 , or a consistent 2% profit out of $30,000?

If you have the time to actively track the market and like to track the market, then DCA may not suit you. Do take note that if you're actively timing the market, you want to keep an eye on your expenses. Profit = Revenue - Expenses. Always remember that.

I've already stayed invested in the market for 8 years and my portfolio has gone through the Great Recession which is still "on-going" in Europe. Results? Mixed. DCA are for those who believe that you cannot predict the future. You may be invested in a company that is ahead of its time, which will later blossom into the next Facebook, or invested in a strong company which suddenly tumbled during the Great Recession. The idea is that you believe in the management of the company, and will consistently buy into the company when the price is right. That is my DCA. Did I regret following this strategy? No. Judging the amount of spare time I have, this is an appropriate strategy that fits into my life.

I'm sure people are interested in the returns so far using DCA and diversification. Truth? Definitely not 8% p.a., the magical figure that analysts or FA are always throwing around. Is it possible? Definitely. I have double digit growth and declines throughout my years in the market. On hindsight, I could have said that I made x% when I sold off at that specific point in time. Did I? No. Don't second guess your actions.

Anyway, back to the point. Did I ever suffer a real loss, from a portfolio perspective? No.

8 years on, my portfolio is going on with a comfortable 4% CAGR excluding dividends, and a dividend of about 4% p.a.

Am I satisfied? Considering the amount of time I've spent on it, yes. Will I continue using this strategy? Definitely ... unless I think of something new.