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This is why the dollar cost averaging technique works so well. No, it's not likely to provide you a financial windfall, but it's also not likely to yield you fi
by taylodl 4y ago
This is why the dollar cost averaging technique works so well. No, it's not likely to provide you a financial windfall, but it's also not likely to yield you financial devastation either. If you're investing for retirement then it generates quite a bit of wealth in the long term.
- lexapro 4y agoYeah, but if you have a lump sum of money it's still better to invest everything at once if you plan to hold it for decades. Vanguard has a good paper on that titled "Dollar-cost averaging just means taking risk later". And as you get close to retirement, you need to be mindful about sequence of returns risk.
- nprateem 4y agoGot a link please? That surely depends on having a > 20 year time horizon
- serioussecurity 4y agohttps://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJ...
- tunesmith 4y agoThis one isn't bad: https://www.reddit.com/r/Bogleheads/comments/wpqsno/lumpsum_investing_vs_dollar_cost_averaging_the/ https://www.reddit.com/r/Bogleheads/comments/wpqsno/lumpsum_... And here's a question. Say you have a windfall and you're deciding whether to lump sum or DCA it. And you decide to DCA. So therefore, why wouldn't you liquidate your entire investment portfolio and also DCA that the same way?
- andrewf 4y agoIf you liquidate your portfolio you're going to have to recognize (pay tax on) capital gains.
- tunesmith 4y agoGood point, but how about for retirement portfolios? I'm trying to point out the irrationality of it - after all, I don't think people desist from liquidating only for tax/fee reasons. "I would sell everything today and DCA back in over the next year if not for those pesky taxes and fees! (shakes fist at sky)"
- andrewf 4y agoHaving thought about it a bit more - I'm not sure what motivation I'd have to sell then immediately DCA back in, my position would end up in the same place! If at the beginning of 2022, I'd had a crystal ball saying "stocks will crash in March then rebound in December", then I have a motivation: I do want to switch to a stock-light position, hold that for a while, then move back. In that situation I'd be inclined to DCA on the way out in January, as well as DCA back in during December. I want to reduce variance more than I want to increase the expected value.
- tunesmith 4y agoSo that's why I think it's a good argument for lump-summing a windfall rather than DCA-ing a windfall.
- user_named 4y agoNo, it isn't better. There is no such knowledge whether it is better to invest $100k today or $10k per month over the next ten months. There is historical data showing that in 2/3 cases, lump sum is better. That says exactly nothing about which will be better today or tomorrow. The future is unknown.
- lexapro 4y agoIf it's better in 2/3 cases, it's better. Yes it could turn out to be worse, but since we don't know the future, it's the better option.
- serioussecurity 4y agoThis is incorrect. https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJ...
- taylodl 4y agoYeah, no. Us normal working stiffs don't typically have a $20M windfall we're looking to invest. That's a whole other ballgame.
- nly 4y agoYeah, people often talk about DCA like there's an alternative. You earn money, you invest a bit... I guess you could borrow money to invest a lump sum, that would be unwise.
- llampx 4y agoI wonder how well dollar cost averaging is going to work in an era of rising interest rates.
- user_named 4y agoYou'll be buying cheaper and cheaper as rates increase. Much better than buying lump sum today.
- llampx 4y agoYou would just end up with a massively underwater position.