DCA v.s. Lump Sum

What is Dollar Cost Averaging (DCA)?



Dollar Cost Averaging (DCA) is a consistent investment strategy with “Equal amount of money” by specific “frequency”.For example, by weekly and monthly, this type of investment is suitable for new investors because you don't have to rely on a lot of money, it can be said that you can invest with only thousands of Baht per month. It is also suitable for investments with the goal of saving money for future use. This results in obtaining the average price of the investing asset. Therefore, there is a chance to receive good returns in the long run.





Example

When you want to DCA in bitcoins with a budget of 12,000 baht per year, every 1st day of each month you need to divide that money by the number of months in a year then you will know that 1,000 baht is required for each month's investment.



So, every 1st day of the month, you will have to buy 1000 baht worth of bitcoins, regardless of what the bitcoins price was at that time.



After 12 months of investment, you bought bitcoins at 12,000 Baht, but the amount of bitcoins you earn depends on the price of the coins you purchased each month. If the bitcoins are high in value, you will get fewer coins. If the value is low, you will get more for the same amount.





Pros



1. Practice the discipline of saving and investing - because it is the distribution of money to invest regularly every month, not missing even a month for a long time. As a result, it will create financial discipline for yourself because it can save money from spending as an investment every month.

2. Average investment cost - A consistent average investment results in lower costs, which ensures that you can buy a large number of investment units at low prices during downtrends.



3. Eliminate emotions from investment decisions - When planning your investments every month, it helps you cut off emotions. For example, if this month the market has dropped, you get to invest. If next month, the market rises and you still get to invest. It is a great way to reduce stress or worry. resulting in missing investment opportunities no matter what the market conditions are.



What is Lump Sum?



Lump Sum is a one-time investment method with a huge amount of money or using a certain amount of money to invest at a time that is considered appropriate (Market Timing) and is confident that the asset price will continue to rise in the future, however, it may be suitable for investors who can analyze fundamental factors (Fundamental Analysis) and the economic situation with good knowledge in technical analysis, a huge amount of money and can wait for the right time to invest.





Example



When you want to invest bitcoins with a budget of 10,000 baht, using that money in just one investment and analyzed that Bitcoin value tends to grow, meaning that if the market is in an uptrend you will receive a higher return, but if the market timing is not good, it can cause you to lose as well.





Pros



1. The trend of higher returns - when investors are confident in the trend of the market and want the investment to have a substantial return, a one-time investment can yield good returns, because the asset prices have the opportunity to increase if invested at the right time.



2. Practice market timing - accurate timing requires information, analysis and experience. The key is to be accurate in trading timing as well. Therefore, it can help train investors to better analyze the market timing.



The investment world has both an uptrend and downtrend. No one can predict the market accurately, so if you study and learn which investment style is suited for you and study enough to increase confidence before investing and have discipline in investing. Whether it's DCA or Lump Sum, it will generate the expected return. 





Reference:



SetInvestnow, BinanceAcademy ,MoneyDiaries