AskI already followed your guide regarding making a portfolio. I am ready to invest my money in a balanced fund mutual fund, around 250,000.00 for my medium risk investment (50%). Should I go all in with the entire 50% (250T) or should I put in, let’s say, 50,000.00 and add 15,000.00 a month from there on out until it reaches 250,000.00? š
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6 Responses to “Should I put in a big initial investment or should I do “cost averaging?””
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Hmm.. interesting problem. And a nice problem to have! š
From my experience (primarily with BPI) there aren’t any “broker fees” or any similar fees that would make it disadvantageous to break down your money and invest “by installment”. So cost averaging is a very viable strategy.
I can’t actually give you useful advice on this, as i don’t know much about your situation.
But personally, if i know i really won’t be needing the money, I’d just invest it all right now and not think about it too much. Perhaps revisiting it once a quarter.
However, when i first invested I had the strong urge to keep checking my money and what happened to it.
In my equity fund, there were times when it went negative. During those times i wished i had money to re-invest again, since i was very confident in the fund and knew it would go back up. I though i could earn more money that way – by sort of “gaming” the fund.
My balanced fund however did not dip so much. So personally i would not have done it to my balanced fund. Much less my money market fund, because it almost never dips.
In the end, i think you should do what’s comfortable for you. As long as you have chosen a good fund, i don’t think it would make much difference.
Thank you for the response again sir! I have decided to go with stock market cost averaging via citiseconline.com’s EIP program instead of a balanced mutual fund for my medium risk investment.
But I will still be investing in an equity mutual fund though as my high risk investment which would be around 200,000.00 (37% of my total investment fund). So, do think I should put it all in or do cost averaging with an equity mutual fund.
And regarding my situation, I really won’t be needing the money right now since I already established an emergency fund which should take care of any unforeseen and immediate needs. The investment fund that I have allocated is really purely for investing for the long term. š
I only recently realized I answered both questions you posted. With so much info, i might as well be your acountant š
But seriously, you hopefully recieved several other opinions as well. I am neither a financial consultant nor an experienced investor.
The biggest advice i could give you is to not constantly check your equity fund. Specially if you go “all-in” right away. If this is also your first time investing in an equity fund, do small amounts first, just to get the “feel” of it. i went all in on my first time. It was a much smaller amount than yours. But even so, i wasn’t able to follow that advice, and almost obsessively checked it. Initially, I was checking it twice a day! Which is really bad for your peace of mind. Now i do it weekly (which is still OC, but as i will need to withdraw it soon, I’ll give myself a pass since i would like to withdraw on a “peak”).
As i said, cost averaging or going all-in form the start might not make a difference. I could give you some bogus advice like “Go all-in now, the stock market is on they way up”. But who knows how the stock market will really behave? And you could cost average, but mutual funds and UITFs already have fund managers who actively manage the fund. Cost averaging the fund is practically redundant. Although if the fund’s value (NAVPU) goes down, or fluctuates wildly, cost averaging might help you.
So in the end, you ask an interesting question but i think only a knowledgeable finance person (like a fund manager) or a very experienced investor can give you an answer.
For me personally, i think it wont make a difference. But if it’s your first time, do cost averaging first. It might give you a sense of control. But if you find that you aren;t too concerned with it, you can just invest it all in now.
Some pros and cons to help you out:
All-in:
100% of you money is growing now
Funds (according to their reports) usually go up in price, so cost averaging might not save you money.
Cost Averaging:
NAVPUs tend to go up, but anything invested in equity always fluctuates. So cost averaging is still a good investment strategy.
Only a small % of your money is growing right now; the others are waiting their turn.
I used to invest all my extra cash just so I wouldn’t have to spend any of them. But after several years I realized that I missed on opportunities to buy at a better time or when the market is down as my cash is trapped and it got trapped for years before it recovered. Just a good thing I didn’t need it that time or I would have suffered huge losses. So now I do a combination and start doing cost averaging. This way it is not too painful when the market dips and I try to keep some cash for those “opportunities”. While waiting, I invest the money in some short term instruments earning some fixed income so I am able to get hold of it immediately when needed.
Peso cost averaging is a good way of investing if the market is unstable. But for now, the market is doing good especially with equity, the best way as of now is a one time big investment. You won’t go wrong. God bless!
Peso cost averaging is a good way of investing if the market is unstable. But for now, the market is doing good especially with equity, the best way as of now is a one time big investment. You won’t go wrong.