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Historical analysis says that generally speaking, dollar cost averaging is inferior to one-time lump sum investments unless you buy lump-sum at the very top of
by glofish 7y ago
Historical analysis says that generally speaking, dollar cost averaging is inferior to one-time lump sum investments unless you buy lump-sum at the very top of a bull cycle. Lump-sum investment is usually better in all other cases, you get the benefit of interest as well, which is at least 30% of the total return.
This is even more true in cases of bear markets. Since the market will most likely rise compared to where it is now, going all-in in a severely depressed market is usually advantageous.
Psychologically, of course, it is more difficult to do so as you have to go against "common wisdom".
Don't get me wrong though,dollar-cost averaging is a great strategy if you don't have lump sums laying around.
- sp332 7y agoI think "every couple weeks" was a reference to an automatic 401(k) contribution from a paycheck.
- dragonwriter 7y agoYou seem to be referring to a hypothetical choice between investing a large accumulation of cash at the start of a period and portioning it out over the period, but the actual recommendation for dollar cost averaging is about moving money into investments as it becomes available rather than accumulating cash and trying to time the market. If you've already accumulated a large cash position, yes, it's almost always better to dump it in the market, but unless it was an unexpected windfall, that just means you were suboptimally failing to use DCA before.
- deepGem 7y agoYes, many people fail to understand this concept of currency cost averaging. Thanks for the succinct explanation.