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That page is inaccurate, according to historical data the downside risk is always greater with dollar cost averaging: https://ofdollarsanddata.com/lump-sum-inve
by sooheon 6y ago
That page is inaccurate, according to historical data the downside risk is always greater with dollar cost averaging: https://ofdollarsanddata.com/lump-sum-investing/ https://ofdollarsanddata.com/lump-sum-investing/
This is because there are always two downsides, the risk of investing just before a huge crash, but also the risk of holding out while a boom passes you by. People always psychologically overweight the former due to loss aversion, but the latter is more pernicious.
- imtringued 6y agoThat's what the chart says but what does human behavior say? Does everyone truly ride the crash down and back up or will some of them panic and leave the market before it recovers? One of those risks a 70% loss the other one merely risks unrealized gains.
- sooheon 6y ago> Does everyone truly ride the crash down and back up or will some of them panic and leave the market before it recovers? This is an orthogonal issue. If you DCA for 12 months and then a crash immediately occurs, you suffer the exact same fate (you are worse off than someone who had 12 months of investment returns prior to the crash). Does this mean you should increase DCA horizon to 24 months? The only way your framing makes sense is if you have prior knowledge that a crash will occur during the DCA period.