Should You Invest More When The Market Falls? How Dynamic RSP Compares To Dollar-Cost Averaging

Investing a fixed amount every month helps build discipline, but could adjusting your contributions based on market conditions improve your long-term returns?

For many Singaporeans, dollar-cost averaging (DCA) is one of the simplest ways to invest regularly. By putting aside a fixed amount every month, investors can build their portfolios without worrying too much about short-term market movements.

But what happens when the stock market falls by 20% or 30%? Would it make sense to invest more while prices are lower, rather than sticking to the same amount?

In an episode of the DollarsAndSense Podcast, Timothy and Agnes speak with Chloe Lin from ArigatoInvestor about traditional DCA and how Webull’s Dynamic Regular Savings Plan (Dynamic RSP) offers a different approach to investing regularly.

Watch the full episode of DollarsAndSense Podcast.

Why Dollar-Cost Averaging Is Popular Among Investors

Dollar-cost averaging involves investing a fixed amount at regular intervals, regardless of whether the market is rising or falling. For example, an investor who sets aside $500 every month will continue investing that amount regardless of market conditions.

When prices are lower, the same $500 buys more units. When prices are higher, it buys fewer units. Over time, investors accumulate their investments at different price points.

One of DCA’s biggest advantages is that it removes much of the emotion involved in investing. Instead of worrying about whether prices are too high or waiting for the market to recover, investors can follow a consistent schedule.

However, while DCA helps investors remain disciplined, it does not automatically increase their investments when prices become more attractive. This raises an interesting question: could investors benefit from investing more during market downturns?

How Dynamic RSP Adjusts Your Investments Automatically

Unlike traditional DCA, where contributions remain fixed, Dynamic RSP adjusts investment amounts according to predetermined market conditions.

Webull’s Dynamic RSP uses moving averages, which measure an asset’s average price over a specified period, to determine how much to invest. Chloe explains that investors can choose between three moving-average periods: 120, 250 or 300.

Depending on how far the market moves above or below the selected moving average, the system adjusts contributions automatically.

For an investor with a base contribution of $500, Chloe illustrates how Webull’s Dynamic RSP adjusts the investment amount under different market conditions:

The figures illustrate the investment adjustments explained during the podcast, based on the selected Dynamic RSP settings.

The idea is to invest more when prices are relatively lower and less when they are relatively higher, without manually adjusting contributions. Unlike reacting to market headlines, the strategy follows rules established in advance.

However, a price falling below its moving average does not necessarily mean it has reached the bottom or will recover soon.

Read Also: Investor’s Guide To Webull, Possibly Singapore’s Most Cost-Efficient Broker

Can Dynamic RSP Improve Long-Term Investment Returns?

By increasing contributions during market downturns, Dynamic RSP allows investors to accumulate more units at lower prices. When markets recover, these additional units can contribute to greater portfolio growth.

During the podcast, Chloe shares a 25-year backtest comparing traditional DCA with Dynamic RSP using an investment tracking the S&P 500.

Based on an initial monthly contribution of $1,000, she explains that traditional DCA would have produced a portfolio worth approximately $1.3 million. Using Dynamic RSP with the 300-period moving average, the portfolio would have exceeded $1.4 million.

While the results illustrate the potential benefits of the strategy, historical backtests do not guarantee future performance. Total contributions also matter when comparing the two approaches, as Dynamic RSP adjusts how much is invested over time.

During prolonged bull markets, Dynamic RSP may also invest smaller amounts while prices continue rising. Its performance therefore depends on market conditions and the parameters selected.

Why Having Enough Cash Matters

One important difference between traditional DCA and Dynamic RSP is how predictable the monthly investment amount will be.

With traditional DCA, someone budgeting $500 each month knows exactly how much to set aside. With Dynamic RSP, that amount can increase to $600 or $1,000 during a market downturn, depending on the selected settings.

Chloe highlights the importance of ensuring sufficient funds are available to support these additional contributions. Otherwise, investors could face unsuccessful transactions or potentially use margin facilities, depending on their brokerage account settings.

Margin investing involves borrowing money to purchase investments, which introduces additional costs and risks. Investors considering Dynamic RSP should therefore ensure that higher contributions remain affordable without affecting their emergency savings or everyday expenses.

Why ETFs May Be More Suitable Than Individual Stocks

Another consideration is choosing the right investment for a long-term strategy. Chloe explains that she generally prefers using Dynamic RSP with exchange-traded funds (ETFs), particularly those tracking broad market indices.

An ETF allows investors to gain exposure to a basket of assets through a single investment. For example, an S&P 500 ETF provides exposure to hundreds of large US companies, reducing reliance on the performance of any single business.

Individual stocks carry additional risks. A company’s share price could fall because its business is struggling, rather than because the broader market is experiencing a temporary downturn. Automatically increasing investments in such a company could result in greater losses if its business continues deteriorating.

Although diversified ETFs reduce company-specific risks, they can still experience substantial declines and are not guaranteed to recover. Choosing suitable investments remains important regardless of the investment strategy used.

Read Also: Diversifying Your US Stocks And ETFs Portfolio In Singapore With True $0 Transaction Fees

Keeping Investment Costs Low

For investors making regular contributions, transaction costs can affect long-term returns. During the podcast, Timothy recalls a time when stock transactions could incur commissions of around $25 to $30, making smaller regular investments relatively expensive.

Webull, the sponsor of the episode, offers $0 commission and $0 platform fees for eligible US stock and ETF trades, as discussed in the podcast. Its Dynamic RSP also supports different investment frequencies, including weekly, fortnightly and monthly contributions.

However, investors should still consider other potential costs, including currency conversion charges and applicable regulatory fees. Lower fees make regular investing more accessible, but should not be the only factor when choosing a brokerage or investment strategy.

Finding An Investment Strategy You Can Stick To

Traditional DCA and Dynamic RSP both aim to encourage consistent, disciplined investing. Traditional DCA offers simplicity and predictable contributions, making it useful for those with fixed monthly investment budgets.

Dynamic RSP provides a more flexible approach by automatically adjusting investments based on predefined market conditions, but requires investors to accommodate potentially higher contributions.

Ultimately, the right strategy depends on an investor’s financial circumstances, risk appetite and long-term goals. As Timothy puts it during the podcast, “The best investment strategy is the one that you can commit to, that you’re comfortable committing to.”

Whether investing $100 or $1,000 each month, the most important step is developing an investment approach that remains sustainable through both rising and falling markets.