Considering that I learned trading earlier than I learned
investing, I actually questioned the idea of the so called “Dollar
Averaging” Strategy preached by many people outside.
And especially when it applied to regular savings plans such as ILPs.
These regular savings plans even when invested into funds, has quite a few things that irk me. Namely, high sales charges (~5%) and fund maintenance/expense charges (~0.7-1.5% pa).
Believe it or not, by having higher charges that nibble away at your funds, even if you invest in small amounts every month, it’s gonna eat into your earnings significantly, be it front or back loading. Dollar averaging is a strategy where you “average” across a long period of time, across good and bad markets, in hopes that it balances overall and gains a net profit at the end, based on the assumption the markets always goes up.
That led me to question, if I could add some manual timing to my entries, wouldn’t it help to reduce my risk as I enter at near support zones or turning points? This is what my ILP have not been able to provide me. It could be done if you have multiple single premium buy-ins over time.
That came another issue, ETFs out there have much lower maintenance/expense charges compared to my ILP funds! (i.e. SPY is only 0.0945% pa, VOO is only 0.05% pa!). Brokerage charges for me is about $10, regardless of trade size (US ETFs allow odd lots).
So I decided I would try it myself.
However, this approach requires a slightly more active management:
Because I feel that this approach increases the upside with every execution, as you are buying low and exiting higher (much later in life). You are averaging with much lower costs compared to the usual dollar averaging and if you are doing it via companies that offer regular savings plans you can save much on the sales charges and expense charges too!
As for more data, I guess I’ll show my own performance every year or something and benchmark it against market indexes or even fund performances =)
More explanations here: http://vainvestmentsoftware.com/docs/Value%20Averaging%20Fund%20-%20presentation.pdf
And especially when it applied to regular savings plans such as ILPs.
These regular savings plans even when invested into funds, has quite a few things that irk me. Namely, high sales charges (~5%) and fund maintenance/expense charges (~0.7-1.5% pa).
Believe it or not, by having higher charges that nibble away at your funds, even if you invest in small amounts every month, it’s gonna eat into your earnings significantly, be it front or back loading. Dollar averaging is a strategy where you “average” across a long period of time, across good and bad markets, in hopes that it balances overall and gains a net profit at the end, based on the assumption the markets always goes up.
That led me to question, if I could add some manual timing to my entries, wouldn’t it help to reduce my risk as I enter at near support zones or turning points? This is what my ILP have not been able to provide me. It could be done if you have multiple single premium buy-ins over time.
That came another issue, ETFs out there have much lower maintenance/expense charges compared to my ILP funds! (i.e. SPY is only 0.0945% pa, VOO is only 0.05% pa!). Brokerage charges for me is about $10, regardless of trade size (US ETFs allow odd lots).
So I decided I would try it myself.
However, this approach requires a slightly more active management:
- You need a trading account (For US counters I recommend getting a US broker such as TD Ameritrade, there’s the STI index for Singapore.)
- If you’re investing in foreign currency, there is currency risks
- You must be DISCIPLINED and only buy according to the rules you set.
- Frequent trading is not allowed. This is a swing trade to a position trading approach.
- My style revolves around Technical Analysis, but Fundamentals are important.
- Set aside money every month to accumulate and execute in standard sizes (I am doing $3000 per execution, yours may vary)
- Buy only during corrections to major Support and Resistance zones (I monitor other indicators as well with news)
- If you MISSED it, you missed it. Your savings doesn’t coincide with market conditions. If you missed the pullback, just WAIT for the next one.
- DON’T be RASH. NO REVENGE TRADING, NO IMPULSIVE buying or selling.
- Only trade the money you can afford to lose. Yes, manage your money and risks.
- Sit tight on any economical crisis. If you have cash then, it’s an AWESOME SALE. Else just sit and wait, believe in it.
Because I feel that this approach increases the upside with every execution, as you are buying low and exiting higher (much later in life). You are averaging with much lower costs compared to the usual dollar averaging and if you are doing it via companies that offer regular savings plans you can save much on the sales charges and expense charges too!
As for more data, I guess I’ll show my own performance every year or something and benchmark it against market indexes or even fund performances =)
More explanations here: http://vainvestmentsoftware.com/docs/Value%20Averaging%20Fund%20-%20presentation.pdf
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