Lump Sum Investment Vs Dollar Cost Averaging

Investment is never easy. Things getting tougher with more challenges ahead amid market volatility around the globe. With the rising inflation rate and decreasing of the purchasing power of our money, the need to make our money working triple harder is definitely of utmost important to everyone of us.

We need to spread our money in various investment channels to mitigate the risk and enhance the value. Among the investment choices, investing in mutual fund is a good way to counter inflation and to grow our money. When come to invest in mutual fund, we always talk about dollar cost averaging and regular saving beside lump sum investment.

Lump sum investment is very common in mutual fund investment where investors put their money in one lump sum ranging from thousand dollars to hundreds of thousand dollars or even million. This amount will be invested in the target fund or funds based on the choice of the investor. There are advantages and disadvantages about lump sum investment. The advantage is that if you invest at the right time at the right price (low price), you have the potential of making big gain. On the other hand, if you invest at the wrong market timing at a wrong price (high price), the chances about losing money is high. There are quite a big number of investors entered into market before the market crash in 2008 are still facing losses in their investment until today.

Whereas for dollar cost averaging under the regular saving, investors put their money (normally in fixed amount) consistently into an investment or target fund at a regular basis. The frequency can be weekly, monthly or quarterly. Under this mode of invetment, the investor will have his investment average out and having an average price for his portfolio.

The beauty of this investment is the potential of making profit is high and it works quite well under volatiled market. It is suitable for investors who are particular with the fluctuality of the market. The amount invested can be small like less than a hundred dollar or it can be more than thousand, depends on your ability . Under this type of investment, you do not have to time the market ( it is impossible to time market also) and anytime is the right time to invest. Investors will be having an average price for his investment and chance for exit when the market is peak.

In summary, it is very difficult to decide which mode of investment is better. It still subject to your afforbility and risk appetite. Both will work under different market scenarios and it's better for you to get advice from your investment adviser.