Dollar-Cost Average (DCA) is a very popular investing technique and I believe it is probably one of the first few techniques that new investors will come across. With so many books and articles explaining the benefits of DCA, I also think that it is well suited for a lazy investor like me – put in a fix amount every month and let father time do its magic. The returns may not be fantastic but I should be able to earn a decent 4 to 5%. Happy businessman or manager brags success graph.

I had the opportunity to take part in ST Engineering (STE) share ownership scheme and put in a fix sum every month.  I have been doing this since Sep 2012 and I increased my monthly contribution by a few dollars every year.


As of Dec 2016, my XIRR is -0.05%. How is that possible?

STE is suppose to be a ‘safe’ stock with little volatility and it never cross my mind that I will lose money. If I take away the dividends, I will lose even more. I recheck my calculation and it seems correct.

Perhaps I can find some clues from the stock price.

STE Price - Sep 2012 to Dec 2016

STE Stock Price – Sep 2012 to Dec 2016

At first glance, the chart looks pretty normal but as I digest it slowly, I realised that I started DCA when STE price is reaching historical high. I have been accumulating  STE at over $4 for about a year and the price dropped steadily after that. Although the price rebounded a little in 2016, the ‘damage’ has been done.

Some may argue that 5 years is too short for DCA to work but I beg to differ. If for the next 5 years, STE price remain stagnant (a high probability) or sinks further, I am pretty sure my XIRR will remain negative. Even if STE price starts to move up, it will probably be just to compensate for the first few years ‘lost’ due to the high price when I first started DCA.

My biggest take away is that market timing is very important. Don’t believe in ‘experts’ that tell you that since you are investing for the long term, you can start DCA anytime. I know that some of our local banks and financial institutions allow investors to buy a fix amount of blue chip stocks every month. In case you are wondering if blue chips will increase your ‘odds’, you can read about my post on STI ETF.

With that I leave you with this definition of DCA by Investopedia:

Dollar-cost averaging (DCA) is an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. The investor purchases more shares when prices are low and fewer shares when prices are high. The premise is that DCA lowers the average share cost over time, increasing the opportunity to profit. The DCA technique does not guarantee that an investor won’t lose money on investments. Rather, it is meant to allow investment over time instead of investment as a lump sum.