
this thing just came to my mind and starts to play.....
assuming I have initially invested RM 5000 into a fund and now it grows to RM 6000 (20% gains)
if I wanted to top up another RM 5000
a) should I top up now at 20% gains? after top up my gains would become only 10%.
b) should I top up when the current gain dropped to 10%? after top up my gains would become only 5%
c) should I top up when the current gain increased to 30%? after top up my gains would become only 15%
d) should I top up when the current gain dropped to 0%? after top up my gains would become 0% (assume no sc)
a) 20% gained before top up
Initial invested RM 5000 at 1.0 nav = 5000 units
Top up RM 5000 at current 1.2 nav = 4166.666 units
total invested RM 10000 ave 1.09 nav total unit available 9166.666 units
total $$ available is 1.2 x 9166.666 = RM 11000
after top up gain is RM 1000 (10% of total invested RM 10000)
b) 10% gained before top up
Initial invested RM 5000 at 1.0 nav = 5000 units
Top up RM 5000 at current 1.1 nav = 4545.454 units
total invested RM 10000 ave 1.047 nav total unit available 9545.454 units
total $$ available is 1.1 x 9545.454 = RM 10500
after top up gain is RM 500 (5% of total invested RM 10000)
is my calculation? Pls correct me if I am wrong...
if correct then anytime is also a good time when the gain is > 0%, bcos the new top up will "eat" into my gains.
then is tis VCA, DCA or ??
The idea of DCA the way I read it is just a way to spread risk. Theoretically, if we know the market is going up ( ie the market is at it's lowest ) we would want to do lump sum investment. In reality things might turn out to be otherwise ( ie after we purchase, the market goes lower ), so we spread out the risk using DCA.
So it's forward looking. It's has little to do with past gain. Past gain got reduced in % figure after we top up, it's just the formula used and the expected result. In other words, using the diluted % gain figure to measure past investment success is deceiving.