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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 j
by 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 agoThanks 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