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I'm not a big fan of Dollar Cost Averaging. If you have a lump sum amount you were going to invest, do it fully at once and let all of the money work. If you di

by ra7 6y ago

I'm not a big fan of Dollar Cost Averaging. If you have a lump sum amount you were going to invest, do it fully at once and let all of the money work. If you divide it and invest over a period of time, you are (1) letting the un-invested money be idle. (2) chasing a market downturn to invest the rest in hopes of "averaging down". Remember, market goes up more often than it goes down, so you will likely end up increasing your cost basis than if you had invested at once.

imtringued 6y ago
Bitcoin is highly volatile. If you do a lump sum payment you might end up joining the market at the top of a bubble where the value of Bitcoin is 12x times its long term value. Sure it will not crash 12x down but going 70% down after the bubble could be enough to cause a panic sale and thus lose your money. >If you divide it and invest over a period of time, you are (1) letting the un-invested money be idle No, that's not always true. For example. When you earn $5000 in excess income per year you can decide to invest it monthly. That's dollar cost averaging and you didn't let your uninvested money sit idle. You can save up $5000 until the end of the year and then invest it. That's a lumpsum and you did let your uninvested money sit idle.
- squeaky-clean 6y ago
  Investing your excess income as you get it isn't really Dollar Cost Averaging the way firms talk about it. It's called DCA on forums and such, but it's really just investing your excess lump sum each time as soon as you get it. Lump Sum vs DCA comparisons are usually made in the context that you have your lump sum now. Not that you're accumulating a lump sum and trying to time the market for when to invest it. The page is titled "How to invest a lump sum of money" after all. > Suppose you received a windfall. Someone gave you a gift or you inherited a lot of money. Maybe you hit the lottery jackpot or got a huge bonus. > Here's the question you face: Should you invest it all right away or in smaller increments over time, a strategy known as dollar-cost averaging?
  - prepend 6y ago
    Thanks for the correction, I didn’t know DCA was meant for lump sums. That makes it really dumb, I think, as it assumes down market. This whole time I thought DCA was a reflection of constantly investing chunks over time as money comes available, a good idea I think. The Wikipedia article [0] has quite a few links to studies showing this is worse than lump sum. I’m trying to think of any scenarios where this would be smart, but they all seem to assume market knowledge and just adjusting a lump sum payment. Even if you “knew” it was a down market and didn’t know when it would pick up it is bad because you would miss the biggest upswings at the bottom of the bear. I think this is just one of those platitudes that retail advisors give people because it sounds good, but actually isn’t. [0] https://en.wikipedia.org/wiki/Dollar_cost_averaging https://en.wikipedia.org/wiki/Dollar_cost_averaging
- ra7 6y ago
  > Bitcoin is highly volatile. If you do a lump sum payment you might end up joining the market at the top of a bubble where the value of Bitcoin is 12x times its long term value. I should have been clear, I'm not talking about Bitcoin at all. Just traditional index investing.

by ra7 6y ago

imtringued 6y ago

Bitcoin is highly volatile. If you do a lump sum payment you might end up joining the market at the top of a bubble where the value of Bitcoin is 12x times its long term value. Sure it will not crash 12x down but going 70% down after the bubble could be enough to cause a panic sale and thus lose your money. >If you divide it and invest over a period of time, you are (1) letting the un-invested money be idle No, that's not always true. For example. When you earn $5000 in excess income per year you can decide to invest it monthly. That's dollar cost averaging and you didn't let your uninvested money sit idle. You can save up $5000 until the end of the year and then invest it. That's a lumpsum and you did let your uninvested money sit idle.

squeaky-clean 6y ago
Investing your excess income as you get it isn't really Dollar Cost Averaging the way firms talk about it. It's called DCA on forums and such, but it's really just investing your excess lump sum each time as soon as you get it. Lump Sum vs DCA comparisons are usually made in the context that you have your lump sum now. Not that you're accumulating a lump sum and trying to time the market for when to invest it. The page is titled "How to invest a lump sum of money" after all. > Suppose you received a windfall. Someone gave you a gift or you inherited a lot of money. Maybe you hit the lottery jackpot or got a huge bonus. > Here's the question you face: Should you invest it all right away or in smaller increments over time, a strategy known as dollar-cost averaging?
- prepend 6y ago
  Thanks for the correction, I didn’t know DCA was meant for lump sums. That makes it really dumb, I think, as it assumes down market. This whole time I thought DCA was a reflection of constantly investing chunks over time as money comes available, a good idea I think. The Wikipedia article [0] has quite a few links to studies showing this is worse than lump sum. I’m trying to think of any scenarios where this would be smart, but they all seem to assume market knowledge and just adjusting a lump sum payment. Even if you “knew” it was a down market and didn’t know when it would pick up it is bad because you would miss the biggest upswings at the bottom of the bear. I think this is just one of those platitudes that retail advisors give people because it sounds good, but actually isn’t. [0] https://en.wikipedia.org/wiki/Dollar_cost_averaging https://en.wikipedia.org/wiki/Dollar_cost_averaging
ra7 6y ago
> Bitcoin is highly volatile. If you do a lump sum payment you might end up joining the market at the top of a bubble where the value of Bitcoin is 12x times its long term value. I should have been clear, I'm not talking about Bitcoin at all. Just traditional index investing.