3 ms·
> Whether I start with the whole pot or not is of no consequence. Do you get paid your salary a whole year in advance? No. Thus this distinction is important.
by mbesto 4y ago
> Whether I start with the whole pot or not is of no consequence.
Do you get paid your salary a whole year in advance? No.
Thus this distinction is important. As noted in the wikipedia article above the rationale for this has to do with "I have a big load of cash right now, do I just put all of it to work now or slowly over time?"
- JustSomeNobody 4y agoSo, I can't do DCA by depositing money 26 times per year and instead can only deposit it once per year? Let's say my career potential earnings are $1000.00US. Why can I not consider that my bucket of cash (even though I do not have it on my person all at once)? By depositing 26 times per year, am I not putting my money to work "slowly over time"?
- kareemsabri 4y agoIt seems like a distinction without a difference. The investing outcome is identical, so why does it matter that your job pays you out over the entire year.
- mbesto 4y agoThe difference is the following: Scenario 1 [S1]: I have $120,000 in cash. Scenario 2 [S2]: I expect to make $120,000 in cash over 12 months, equally once a month On Day 0... S1 - I have two choices: put all $120k in the market ("lump sum") or DCA is over 12 months. S2 - I have no choice but to DCA it. If I choose to DCA in S1, then I could have made more money by lump summing (depending on market conditions). This is basic TVM.