Should You DCA Into Your FIRE Portfolio, or Invest More When Markets Fall?

For most people pursuing financial independence, regular dollar-cost averaging (DCA) is probably one of the easiest investment strategies to implement. You receive your salary, set aside a fixed amount every month, invest it into a diversified portfolio and allow compounding to work over the next 15–20 years.

What if, instead of investing a fixed amount every month, we set a target growth trajectory for our portfolio and adjust our contributions depending on actual market performance?

For example, suppose we want our portfolio to grow by 8% annually. During a year when equities return 20%, we could reduce our contributions and retain more cash. Conversely, when the market falls by 20%, we could increase our contributions to bring the portfolio back towards its target.

Conceptually, this allows us to invest more when markets are relatively cheap and less when markets are expensive.

It sounds like a better strategy than blindly investing the same amount every month.

But does the mathematics support it?

Two Different Approaches to Investing

Let's begin by defining the strategies.

Strategy 1: Regular DCA

Assume an investor contributes S$3,000 monthly into a low-cost S&P 500 index fund, regardless of whether the market is rising or falling.

This translates to S$36,000 annually. The investor does not try to forecast returns, hold back investments for better opportunities or adjust contributions based on market performance.

Strategy 2: Target Portfolio Growth

The investor still sets aside S$36,000 annually, but instead of automatically investing everything, contributions are determined by the gap between the actual portfolio value and a predetermined target.

Suppose the investor targets 7% annual portfolio growth before contributions.

The required investment becomes:

Required Contribution = Target Portfolio Value − Actual Portfolio Value Before Contribution

If the market performs exceptionally well, contributions could fall to zero, with the surplus savings retained in cash. If the portfolio underperforms, the investor increases contributions using previously accumulated cash reserves.

This approach resembles value averaging, a strategy popularised by Michael Edleson.

The distinction is important. DCA is designed to consistently deploy capital, while value averaging attempts to keep the portfolio on a predetermined growth path.

What Does History Tell Us?

To examine this, I ran a simplified historical backtest using the S&P 500's annual total returns from 2000 to 2025, including reinvested dividends.

The period is useful because it captures several very different environments, including the dot-com collapse, the Global Financial Crisis, the subsequent bull market, COVID-19 and the inflation-driven correction of 2022.

I used the following assumptions:

Parameter	Assumption
Starting portfolio	S$0
Annual savings available	S$12,000
DCA contribution	S$12,000 annually
Target portfolio growth	7% annually
Maximum annual investment under target strategy	S$24,000
Cash reserve return	0%
Investment horizon	10–26 years

Both strategies have access to exactly the same savings. Contributions are invested at year-end, and the target-growth investor cannot borrow money or sell existing investments to manipulate the outcome.

Importantly, money not invested under the target-growth strategy is retained as cash and included in final wealth.

This ensures we do not incorrectly conclude that a strategy is superior merely because it invested more money.

The Results

Here is what happens when we compare both strategies over several historical periods.

Investment period	Regular DCA	Target growth strategy, including cash	Difference
2000–2014	S$347k	S$348k	+S$0.4k
2010–2024	S$537k	S$464k	-S$73k
2011–2025	S$559k	S$482k	-S$77k
2000–2025	S$1.70m	S$1.51m	-S$194k

Rounded values from my historical calculations; nominal returns, before investment fees, taxes and currency fluctuations.

The results are interesting.

Despite targeting portfolio growth and having the flexibility to increase investments during downturns, the target-growth strategy did not consistently outperform regular DCA.

Over the entire 2000–2025 period, regular DCA accumulated approximately S$1.70 million compared with S$1.51 million for the target-growth strategy.

That represents approximately S$194,000 of additional wealth, despite both investors having saved the same total amount.

Why?

The Problem With Holding Back Cash

The main weakness of a target-growth strategy emerges during prolonged bull markets.

Between 2009 and 2021, the S&P 500 experienced an exceptionally strong period. An investor targeting 7% annual growth would frequently find that the portfolio was already ahead of its planned trajectory.

Under the target-growth rules, this means reducing contributions and accumulating cash.

But if the market continues appreciating, the investor can remain underinvested for years.

In the full 2000–2025 backtest, the target-growth investor ended with approximately:

• S$1.37 million in equities

• S$138,000 in cash

  
  

The DCA investor, meanwhile, had approximately S$1.70 million invested in equities.

The gap was largely driven by the opportunity cost of holding cash during strong markets.

This illustrates a limitation of value averaging.

It is designed to keep a portfolio close to its targeted trajectory, rather than maximise capital deployed into assets with positive expected returns.

When the market consistently outperforms the target, the strategy can become unintentionally conservative.

But What About Buying More During Market Crashes?

This is where the strategy appears most attractive.

The S&P 500 recorded a return of approximately -37% in 2008. For investors with available cash, the subsequent recovery created a tremendous opportunity to accumulate more equities at depressed valuations.

The problem is that a target-growth strategy does not automatically guarantee additional purchasing power during a crash.

In my backtest, the investor began contributing in 2000, experiencing three consecutive negative market years before eventually encountering the Global Financial Crisis.

With relatively weak returns during the early years, there was limited accumulated cash available to deploy during subsequent corrections.

The maximum contribution was also capped at twice the regular annual investment.

This limitation becomes particularly important for Singaporean households. If you normally invest S$3,000 monthly, increasing that amount to S$6,000 during a severe correction may not be financially realistic, particularly when household expenses, mortgage obligations and employment risks remain unchanged.

A strategy requiring additional capital during bad economic environments can be difficult to execute precisely when it is most attractive.

Does the Outcome Depend on Market Timing?

Absolutely.

I also tested rolling historical investment periods using the same contribution rules.

Investment horizon	Historical periods tested	Target growth outperformed DCA
10 years	17	5
15 years	12	2
20 years	7	0

In this particular backtest, target growth outperformed in approximately 29% of the 10-year periods, 17% of the 15-year periods and none of the 20-year periods.

These are historical frequencies, not forward-looking probabilities. The windows overlap, the sample is limited and the results are highly dependent on the chosen 7% target, contribution limits and assumed cash return.

Nevertheless, they suggest something important: the longer an investor remains in a market with positive long-term expected returns, the more costly it can become to repeatedly hold back contributions.

This is consistent with Vanguard's research comparing immediate investing against gradually deploying existing cash. Vanguard found that investing immediately outperformed spreading investments over time in approximately 68% of historical one-year comparisons.

Although that research examines lump-sum investing rather than salary-funded DCA or value averaging, the underlying principle is similar.

Money waiting on the sidelines has an opportunity cost.

What Does This Mean for FIRE?

Let's make the scenario more relevant to a Singaporean household.

Assume a 35-year-old investor has:

• S$250,000 invested

• S$36,000 of annual investment contributions

• A target portfolio of S$2 million

• A long-term expected return of 7%

If the portfolio grows at exactly 7% annually, the expected trajectory would look approximately like this:

Age	Portfolio value
35	S$250k
40	S$552k
45	S$975k
50	S$1.57m
53	S$2.03m

This implies financial independence at approximately age 53, assuming the S$2 million figure is the required retirement portfolio.

However, actual market returns will not be a smooth 7% every year.

If markets rise rapidly, the investor may reach FIRE substantially earlier. Conversely, a major correction just before retirement may delay the target by several years.

This is where I think the purpose of a target-growth approach becomes more interesting.

Rather than using it to maximise portfolio returns, perhaps it can be used to manage the required savings effort.

When markets perform strongly, the investor can reduce additional contributions and redirect some savings towards other financial goals. When markets underperform, the investor can increase contributions, provided household finances allow it.

This is not necessarily the fastest way to FIRE, but it may provide a more balanced relationship between present consumption and future wealth accumulation.

The Mathematical Difference Between the Two Strategies

Consider a simplified 10-year period in which an investor starts with S$500,000.

At a 7% annual return, the portfolio would grow to approximately:

S$984,000 without any further contributions.

If the investor contributes S$36,000 annually instead, the portfolio grows to approximately:

S$1.48 million.

The additional contributions account for almost S$500,000 of terminal wealth.

However, there is a subtle difference between using market performance to determine

investment contributions and using the remaining distance to FIRE to determine savings requirements.

If the portfolio unexpectedly appreciates from S$500,000 to S$700,000, the investor is objectively closer to FIRE.

But that does not necessarily mean the expected return on equities has declined enough to justify holding cash.

Similarly, if the portfolio falls from S$500,000 to S$350,000, the investor is further from FIRE and may need higher contributions. But they could simultaneously be facing weaker employment prospects, lower bonuses or higher household financial risks.

In other words, the ability to contribute more and the attractiveness of market valuations are not always aligned.

This is why portfolio performance alone may be insufficient to determine contribution levels.

Perhaps There Is a Better Hybrid Strategy

Rather than choosing between pure DCA and target growth, I would consider combining the two.

A possible framework would be:

1. Maintain a minimum DCA contribution

Commit a fixed amount of monthly investments that continues regardless of market performance.

For example, a Singaporean household saving S$60,000 annually could invest S$48,000 through monthly DCA, equivalent to S$4,000 per month.

2. Retain a discretionary investment budget

Set aside the remaining S$12,000 annually for opportunistic investing, as long as emergency reserves remain adequate.

This money could initially be held in Singapore T-bills, Singapore Savings Bonds or other suitable liquid instruments, with the understanding that their yields vary and early access conditions differ.

3. Deploy additional capital during meaningful corrections

A rules-based approach could look like this:

Market drawdown from previous high	Additional investment
Less than 10%	Regular DCA only
10–20%	Deploy 25% of available reserve
20–30%	Deploy another 35%
More than 30%	Deploy remaining 40%

This approach allows most savings to remain invested while reserving a relatively small amount for market corrections.

There is one important limitation. If markets never experience the targeted correction, the discretionary reserve will remain underinvested. The cash drag is therefore reduced, not eliminated, and this hybrid strategy has not been shown by the preceding backtest to outperform DCA.

The advantage is primarily behavioural. It gives investors a predefined process for responding to volatility rather than making discretionary decisions during periods of fear.

The Singapore Household Constraint

For Singaporeans pursuing FIRE, the contribution decision cannot be separated from housing, CPF and family obligations.

Unlike CPF savings, which are contributed automatically, investments into equities are discretionary. A household supporting children, servicing a mortgage and maintaining an emergency reserve may not have the financial flexibility to double contributions during a recession.

The investor's financial position also matters.

Someone with S$100,000 invested and S$60,000 in annual savings has substantial contribution power relative to portfolio size. A market crash can be an opportunity to accumulate more shares through future income.

Someone with S$2 million invested and only S$50,000 in annual savings faces a different situation. A 30% market correction represents a S$600,000 portfolio decline, equivalent to 12 years of regular contributions.

At that point, adjusting contributions may have relatively little influence on the overall outcome.

As portfolios grow, investment returns increasingly dominate savings contributions.

This suggests that contribution optimisation may be most valuable during the earlier stages of wealth accumulation, while asset allocation, liquidity and sequence-of-returns risk become more important closer to retirement.

The Data Science Perspective

The backtest suggests that regular DCA is difficult to beat consistently, not because it is particularly sophisticated, but because it keeps capital exposed to assets that have historically delivered positive long-term returns.

A target-growth strategy introduces an additional decision: how much capital should remain uninvested while waiting for the portfolio to fall below its planned trajectory?

The answer depends on market conditions, the cash return, how much additional capital the investor can deploy and whether the portfolio subsequently recovers.

There is no guarantee that more elaborate contribution rules will produce better results.

For someone pursuing FIRE, I find it useful to separate three objectives:

Objective	More suitable approach
Maximise long-term expected portfolio wealth	Regular DCA of available savings
Maintain a predetermined portfolio trajectory	Target growth / value averaging
Balance consistent investing with buying corrections	DCA with a limited opportunity reserve

These are different optimisation problems.

The first prioritises terminal wealth. The second prioritises staying close to a financial target. The third introduces flexibility, but accepts some opportunity cost from holding cash.

Final Thoughts

At first glance, adjusting portfolio contributions according to a targeted growth rate seems more intelligent than mechanically investing the same amount every month.

After all, investing more when markets underperform and less when markets outperform sounds like a disciplined way to buy low and avoid buying high.

However, the historical numbers suggest that the strategy may not work as well as intuition implies. Over long periods, holding back investments can create a substantial opportunity cost, especially when equity markets experience extended bull runs.

For someone trying to reach FIRE as early as possible, regular DCA may therefore remain the more effective default, particularly when contributions are funded by monthly employment income.

A target-growth approach still has merit, but perhaps its greatest value is not in generating superior investment returns. It is in helping investors understand how much they need to save as their portfolio moves closer to or further away from their financial goals.

Personally, I find the hybrid approach interesting as a behavioural compromise, provided the opportunity reserve remains relatively small and does not interfere with long-term investing.

The key insight is that maximising portfolio returns and maintaining a predetermined portfolio growth path are two different objectives. And perhaps the biggest mistake investors make is assuming that a more complicated contribution strategy necessarily produces a better financial outcome.

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