Invest in Singapore: Risks of Dollar Cost Averaging

Singapore investment: Risks of Dollar-cost-averaging
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What is dollar-cost-averaging?

Many people mistake investing in Singapore as naturally given them safety. In fact, no

matter where you invest in, you will still need to do your home work.


In shares, dollar-cost-averaging is used to lower the average cost of your

purchase.
Just as an illustration using shares: -

Jan 2009 - 1000 shares at $5.00

Feb 2009 - 1000 shares at $4.00

Mar 2009 - 1000 shares at $2.00

The average cost of the above share = ($5.00 + $4.00 + $2.00 )/ 3 = $3.67

The aim of dollar-cost-averaging is to mitigate a wrong timing of purchase. If

you purchased something at $5.00, the prices have now fallen, in order to

lower your overall average cost of purchase, you will have to buy more at

the lowered prices.


RISKS of dollar-cost-averaging

When the shares have fallen, people who blindly believe in dollar-

cost-averaging will put more money into the company whose shares have

fallen.


Then the shares fall further, he/she buys more, it falls further, he/she buys

even more. So much so that the cost of the shares is very cheap. If the

share price rebounds, the person can become very rich.


INFORMATION ASSYMMETRY

However, in many cases, there is a reason why the share prices have fallen.

We almost always have to assume that the insiders know better than we do.

It can mean that the company is seriously in trouble.

Despite years of making the market more transparent, efficient and with

timely dissemination of information, it is still the insiders and their inner circle

that knows what is going on in a company best.

Buying the shares when insiders are dumping is the easiest way for a

person to loose an entire fortune.


SO WHAT SHOULD WE DO?

The best way to do is to re-assess the company's financial fundamentals,

macro and micro economic fundamentals to establish a NEW fair value for

the company's shares and it's potential.


Once you have established that, you can then decide whether to throw more

money into the company.


If you have thrown in money in the past and it is lost, you must be able to let

go. So the key thing to do is: -

When markets rise, do not greed. (Do not rush to buy more without proper homework)

When markets fall, do not fear. (But do not become a "rambo" either)

In both cases, do your homework, then act on it. And when we say ACT on

it, we don't just mean, BUY or SELL. It could also mean do Nothing.


Some people emphasize and quote Warren Buffet, "When others are greedy, be fearful,

when others are fearful, be greedy" this is simply a contrarian style of investing. Do

not go into it blindly. Because what you didn't know is, Warren Buffet's been watching

and observing certain shares for YEARS waiting for the right moment. These shares may

have been consistently over-priced, but are nonetheless good companies. When these

shares suddenly and without reason are being dumped because people are fearful of the

general market, that is when Warren Buffet acts.


Do not use Warren Buffet's maxim when you only know half the story and didn't do your

homework. You will BET YOUR FARM and LOSE IT.


The key thing is, never take one or two simple concepts and treat it as

universal truth and apply it indiscriminately to all situations. There is no free

lunch!


Luckily physical properties have less the the problems associated with shares when

applying Dollar cost averaging.


www.PropertyBuyer.com.sg

is a Researched Focused Mortgage Advisory that helps individuals

refinance or obtain the best fit home loans. We do not simply emphasize

cheap rates, but rather focus on a risk versus savings approach.

You can approach us to evaluate refinancing of your home loan. The service

is free to you as banks pay us separately. You can click on "About us" to

know more about us.

You have nothing to lose and everything to gain.

www.PropertyBuyer.com.sg

also focuses on helping property buyers get the right property investment by checking

checking and ensuring a fair valuation so that they do not overpay or get excited when

an agent tells them the property is hotly in demand.

Find the right home loan package that fits the needs of the home property buyer,

process the loan till approval.


When the loan is finally approved, www.PropertyBUYER.com.sg helps you to check the

letter of offer to make sure the terms are exactly as agreed prior to the offer and

spot major mistakes and omissions.

(Some home owners were promised some terms and pricing, but when the offer came, there were some mismatch. One of the home owners signed on it and only to realize months later that instead of a No-lock in period, he was locked-in for 3 years, with a penalty of 1.5% on FULL redemption. His property was 700k and his loan was only 400k. In case he were to get an offer to sell his property within 3 years, he would incur a $6,000 loss)


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