The most common dollar-cost averaging mistakes are behavioural, not technical: stopping when prices fall, switching to whatever did well last year, and forgetting the plan once it is running. Others are about costs and choices: paying a minimum fee that eats a large share of a small monthly sum, putting the whole plan into one or two shares, and never rebalancing.
Dollar-cost averaging (DCA) is a method, not a guarantee. Investing can lose money. This guide lists the traps and how people avoid them; it does not recommend any product.
1. Starting Before You Have a Cash Buffer
If an emergency forces you to sell, it usually happens at a bad time. The MAS and MoneySense Basic Financial Planning Guide suggests at least three to six months of expenses in savings first. Use the emergency fund calculator to set a target, then start the plan.
2. Stopping or Selling When Prices Fall
This is the one that costs most. A fall is when a fixed sum buys the most units. In our illustration in DCA in a bear market, pausing $500 a month through the cheapest five months and catching up later left about $450 less after a year than simply carrying on.
MoneySense warns that a temporary drop can provoke a sell decision that locks in that loss permanently. If money is tight, reduce the amount; do not sell to cover the gap if your emergency fund can do it.
3. Chasing Last Year’s Winner
Switching your monthly plan into whatever rose most last year feels sensible and often is not. MoneySense describes two traps:
- Herd behaviour, the “kiasu” tendency to follow what everyone else is doing rather than making an independent assessment.
- Overconfidence: when markets are rising, crediting our own skill for good returns, which can lead us to take more risk and trade too often.
A plan chosen for your goals and time horizon does not need changing because something else had a good year.
The short version: most DCA mistakes come from abandoning the plan, either by stopping in a fall or by chasing a hot performer. Fix the plan in advance, check the fee per purchase, spread your money, and rebalance once in a while.
4. Paying High Fees on Small Amounts
Fees are charged on every purchase. A S$5 minimum on a $100 buy is 5%. OCBC’s Blue Chip Investment Plan, for instance, charges 0.3% or S$5 per counter, whichever is higher, for most customers; on $100 that is $5. Splitting $100 across three counters triples it.
Check the fund’s own yearly expense ratio too: it is taken every year, on top of any purchase fee. Our pros and cons of dollar-cost averaging works through the maths, and our regular savings plans comparison shows how each plan charges.
5. Putting Everything Into One or Two Shares
Many monthly plans offer individual blue-chip shares. Buying one bank or one REIT every month for years concentrates your money in one business and one sector. MoneySense notes that if you invest in a single company’s shares, you may lose all your money if the company goes bankrupt.
DCA into a falling single stock can mean buying more of something that never recovers. A broad fund spreads that risk across many companies; the ETF investing guide explains how.
6. Never Rebalancing
If you buy into two holdings, say shares and bonds, their weights drift as prices move. MoneySense suggests you review your portfolio regularly and re-balance.
Illustration only. You aim for 60% shares and 40% bonds. Shares rise 30% and bonds stay flat. You are now at about 66% shares and 34% bonds, taking more risk than you chose. Rebalancing means directing new money, or moving some existing money, back towards 60/40.
A simple way with DCA: send the next few months’ contributions to whichever holding is below target, instead of selling.
7. Leaving Money Idle
Two common leaks:
- Dividends paid out as cash that sit in a savings account. Some plans reinvest automatically and some do not; see value averaging and dividend reinvestment.
- SRS contributions left uninvested. If you contribute to SRS for the tax relief, the cash earns little unless you invest it. See DCA with CPF and SRS.
8. Treating Dollar-Cost Averaging as a Guarantee
DCA lowers your average cost relative to the prices you paid. It does not make a poor investment good, and it does not stop losses if prices fall and stay down. It also does not protect you from schemes that promise steady monthly returns. MAS keeps an Investor Alert List of unregulated entities that may have been wrongly perceived as regulated.
Also: never review the amount. A plan set at $200 when you started work may be far below 10% of your income five years later, the share the Basic Financial Planning Guide suggests investing.
What To Do Next
- Write your plan down: amount, holdings, when you would change it, and when you review.
- Work out your fee per purchase as a percentage of your monthly amount.
- Check how concentrated you are; one or two broad holdings usually spread more than many single shares.
- Model a fall-and-recovery and a fall-and-stay-down path in the DCA vs lump sum calculator.
- Do your own due diligence: check every provider in the MAS Financial Institutions Directory and the Investor Alert List.
