KCLau's Money Tips Forum

[ck3lam]

What is your opinion on this 2 strategies? Put a lump sump of money in a fund and let the compound interest to do its work or allocate a regular monthly premium (Ringgit Cost Averaging) for long term investment. Which would you recommended?

Btw KC, you mention about never repurchase your fund unit in your book, can you elaborate more? Thanks.

[KCLau]

What I mean is for compound interest to work, you must not redeem (repurchase) your unit trust fund. Let it rolls.

To elaborate your case (lump sum or RCA), let's assume you have 10k to invest now, in an equity fund

Option 1: lump sum invest 10k
- higher risk because we won't know if the market is going up or down.
- if it goes up, you gain the most
- if it goes down, you lose the most
- if it fluctuate, you main gain nothing (depends on where it ends)

Option 2: lump sum invest 1k, then use RCA to invest the rest monthly, say 1k/month
- lower risk because we won't know if the market is going up or down.
- if it goes up, you gain less compared to option 1
- if it goes down, you lose less compared to option 1
- but if it fluctuates - you still gain

If I where you, I would consider another condition - will you have more money to invest down the road.
Let's say you will have additional 1k to invest every month after the initial 10k. Then I will choose option 1. (since the timing now is quite ok because most investment are discounted - it means low)

If 10k is all I've got, and I won't be able to save more in the near future, then I will choose option 2.