One of many frequently asked questions that investment professionals like us have received from our relatives and friends is “When should I invest to receive maximum profit?” The answer that is as popular as the question (but people do not like to hear) is “There is no answer.”. We have to admit that even the fund manager or investment professionals find it hard to determine the right timing for investment or “Market Timing” in investment term. So what we usually suggest (and we also do it ourselves) is to invest regularly, using the Dollar Cost Averaging (DCA) technique. With this technique, you buy a fixed amount of a particular investment on a regular schedule (normally every month), regardless of the condition of the stock market. The DCA enables you to invest at competitive cost and to build a habit of investing regularly.

Buying a fixed amount of a particular investment on a regular schedule is suitable for investment in mutual funds whose policy is to invest in equity instruments (shares) of high volatility. As equity fluctuates often, it is difficult to determine which day to buy units. With the DCA technique, investors can avoid making investment at excessively high cost. In other words, retail investors psychologically tend to be excited and invest when the market rises. As a result, they end up with investment that continues to depreciate so DCA actually fills in the gap on this psychological flaw. For better understanding, let’s look at a comparison of investment using the DCA technique for the data of the past year. Scenario: an investor bought units in a fund that invests in SET index at 10,000 Baht on the first trading day of each month.

As shown in the above table, according to the data on the investment cost, 10 out of 12 investments incurred lower cost than investment value at the end of the year. Therefore, in average, it is almost impossible that total cost of investment will exceed the investment value at the end of the year. On the other hand, if an investor chooses to make one-time investment in a lump sum of 120,000 Baht at a particular month, the chance that he/she may do so at the wrong time hence ends up with higher cost than the actual value is 2 out of 12. Although it is unlikely that the investment may be made at a wrong time, if it occurs, it will have substantial impact on investment. Also psychologically, investors tend to invest when the market is improving but they are not strong enough to invest when the market is going down which means the chance of investing at a wrong time can be higher than 2 out of 12.