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The majority of individual investors should be dollar cost averaging (investing the same amount of money at consistent intervals) over the long haul. This pande

The majority of individual investors should be dollar cost averaging (investing the same amount of money at consistent intervals) over the long haul. This pandemic isn't impacting my strategy and i'm staying the course. I'm not aiming to retire for 20 years so this will (hopefully) just be a blip in my long-term returns.

unlinked_dll 7y ago
Meanwhile people about to retire are watching their retirement funds evaporate.
- whatshisface 7y ago
  They might be, but hopefully they realized that you need to change your composition as you get closer to retirement.
  - CrackpotGonzo 7y ago
    Exactly, your strategy evolves as you age. But allocation, investment schedule and amount shouldn't change over a short time period or in light of any external factors.
    - dragonwriter 7y ago
      External factors can impact expected lifespan, expected retirement date, amount available to invest, and long-term structural factors impacting allocation. Those things shouldn't change in response to short-term market fluctuations, but not all external events are limited to short-term market fluctuations.
- samfriedman 7y ago
  I'd really hope that people about to retire don't have a significant amount of their investments in equities...
  - jsight 7y ago
    It is common to maintain a significant amount in equities well into retirement. Due to low interest rates, it sometimes is the only valid strategy. The key is to maintain a mix that allows for short to medium term fluctuations in the market (and economy) like this. EDIT: I highly recommend the book "A Random Walk Down Wall Street" for more details on asset allocation strategies at various ages.
    - FartyMcFarter 7y ago
      > It is common to maintain a significant amount in equities well into retirement. Due to low interest rates, it sometimes is the only valid strategy. Why are stocks a valid strategy (where there's possibility of easily losing 20-30%), while losing a few percent due to inflation in something like a savings account isn't?
      - maximente 7y ago
        retirements these days can last 20+ years (65 => 85 or earlier if wealthy). Federal Reserve mandate means your money loses significant value every year if stuck in a savings account. i am not aware of savings accounts paying 3%+, even bonds don't return that YoY. yes you may "avoid" losing 20-30% in one year, but those tend to come back quickly; with risk averse investments you're just stemming losses, not breaking even. also see cFIREsim for an idea of the math: you're basically guaranteed to run out of money if you try to park in safe havens and you end up living a fair bit after you retire.
      - jsight 7y ago
        I wouldn't say that sticking with savings accounts is an invalid strategy. If you have enough money, many strategies are viable. If you are struggling to stay within a "safe" withdrawal rate of 2-3%, you may find that equities are your only chance of getting the returns that you need.
- vishnugupta 7y ago
  Isn’t it suggested to wean off equities as one nears retirement age? Isn’t it done automatically by pension funds? I’m from India where the government owned retirement fund (EPF) is only now testing equity waters and the recent fund (NPS) isn’t big enough to cause damage so I’m not aware of how this works.
  - awb 7y ago
    I've heard the following advice: Hold a % of bonds equal to the % of life you've lived and a % of stocks equal to the % of life you have left. Ex. If you're 40 and think you'll live to 100, try to hold 40% bonds and 60% stocks.
    - ggambetta 7y ago
      An even simpler and mostly equivalent formulation is the "your age in bonds" rule of thumb.
      - vishnugupta 7y ago
        The version I’ve heard is “equity share of your investments == life expectancy - current age”
  - smallgovt 7y ago
    Yes, but pretty much all asset classes are getting hammered except gold.
- jader201 7y ago
  Most people close to retiring should have already been slowly moving their investments into lower risk forms of investments before now, anyway.
- seanmcdirmid 7y ago
  You should start moving from stocks to bonds about 10 years before you retire just because of things like this.
riffraff 7y ago
IIRC there is some evidence[0] that investing a lump sum at once will, on average, be better than DCA. But DCA has significant psychological advantages, so it may still be a good choice. Obviously if you do not hold significant cash and are going to invest your savings monthly there is no difference between DCA and lump sum investing. [0] https://www.jstor.org/stable/2330513?seq=1 https://www.jstor.org/stable/2330513?seq=1
- doubleunplussed 7y ago
  The term 'dollar-cost-averaging' is used ambiguously. Sometimes it refers to intentionally delaying purchasing compared to a lump sum, in order to spread the purchase out. That's what the paper you're linking to is talking about. However, what retail investors should be doing is investing some fraction of their paycheck each pay cycle, or something like that. That's not the same thing. There is no lump sum at their disposal to invest - they're investing as soon as they have the money. What they're not doing is saving up cash and trying to buy the dips in lump sums, which I think most would agree is a bad idea. So they're both investing as soon as they have the money available, and they're benefiting from the averaging, which you may or may not call 'dollar cost averaging'. It seems ideal to me, and this is what I think the comment you're replying to is referring to.
deleted 7y ago
[deleted]

unlinked_dll 7y ago

Meanwhile people about to retire are watching their retirement funds evaporate.

whatshisface 7y ago
They might be, but hopefully they realized that you need to change your composition as you get closer to retirement.
- CrackpotGonzo 7y ago
  Exactly, your strategy evolves as you age. But allocation, investment schedule and amount shouldn't change over a short time period or in light of any external factors.
  - dragonwriter 7y ago
    External factors can impact expected lifespan, expected retirement date, amount available to invest, and long-term structural factors impacting allocation. Those things shouldn't change in response to short-term market fluctuations, but not all external events are limited to short-term market fluctuations.
samfriedman 7y ago
I'd really hope that people about to retire don't have a significant amount of their investments in equities...
- jsight 7y ago
  It is common to maintain a significant amount in equities well into retirement. Due to low interest rates, it sometimes is the only valid strategy. The key is to maintain a mix that allows for short to medium term fluctuations in the market (and economy) like this. EDIT: I highly recommend the book "A Random Walk Down Wall Street" for more details on asset allocation strategies at various ages.
  - FartyMcFarter 7y ago
    > It is common to maintain a significant amount in equities well into retirement. Due to low interest rates, it sometimes is the only valid strategy. Why are stocks a valid strategy (where there's possibility of easily losing 20-30%), while losing a few percent due to inflation in something like a savings account isn't?
    - maximente 7y ago
      retirements these days can last 20+ years (65 => 85 or earlier if wealthy). Federal Reserve mandate means your money loses significant value every year if stuck in a savings account. i am not aware of savings accounts paying 3%+, even bonds don't return that YoY. yes you may "avoid" losing 20-30% in one year, but those tend to come back quickly; with risk averse investments you're just stemming losses, not breaking even. also see cFIREsim for an idea of the math: you're basically guaranteed to run out of money if you try to park in safe havens and you end up living a fair bit after you retire.
    - jsight 7y ago
      I wouldn't say that sticking with savings accounts is an invalid strategy. If you have enough money, many strategies are viable. If you are struggling to stay within a "safe" withdrawal rate of 2-3%, you may find that equities are your only chance of getting the returns that you need.
vishnugupta 7y ago
Isn’t it suggested to wean off equities as one nears retirement age? Isn’t it done automatically by pension funds? I’m from India where the government owned retirement fund (EPF) is only now testing equity waters and the recent fund (NPS) isn’t big enough to cause damage so I’m not aware of how this works.
- awb 7y ago
  I've heard the following advice: Hold a % of bonds equal to the % of life you've lived and a % of stocks equal to the % of life you have left. Ex. If you're 40 and think you'll live to 100, try to hold 40% bonds and 60% stocks.
  - ggambetta 7y ago
    An even simpler and mostly equivalent formulation is the "your age in bonds" rule of thumb.
    - vishnugupta 7y ago
      The version I’ve heard is “equity share of your investments == life expectancy - current age”
- smallgovt 7y ago
  Yes, but pretty much all asset classes are getting hammered except gold.
jader201 7y ago
Most people close to retiring should have already been slowly moving their investments into lower risk forms of investments before now, anyway.
seanmcdirmid 7y ago
You should start moving from stocks to bonds about 10 years before you retire just because of things like this.

riffraff 7y ago

IIRC there is some evidence[0] that investing a lump sum at once will, on average, be better than DCA. But DCA has significant psychological advantages, so it may still be a good choice. Obviously if you do not hold significant cash and are going to invest your savings monthly there is no difference between DCA and lump sum investing. [0] https://www.jstor.org/stable/2330513?seq=1 https://www.jstor.org/stable/2330513?seq=1

doubleunplussed 7y ago
The term 'dollar-cost-averaging' is used ambiguously. Sometimes it refers to intentionally delaying purchasing compared to a lump sum, in order to spread the purchase out. That's what the paper you're linking to is talking about. However, what retail investors should be doing is investing some fraction of their paycheck each pay cycle, or something like that. That's not the same thing. There is no lump sum at their disposal to invest - they're investing as soon as they have the money. What they're not doing is saving up cash and trying to buy the dips in lump sums, which I think most would agree is a bad idea. So they're both investing as soon as they have the money available, and they're benefiting from the averaging, which you may or may not call 'dollar cost averaging'. It seems ideal to me, and this is what I think the comment you're replying to is referring to.

deleted 7y ago

[deleted]