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A single purchase at the weighted average price is the same as the DCA'd purchase. In both cases you buy X shares for Y$.
by DelaneyM 4y ago
A single purchase at the weighted average price is the same as the DCA'd purchase. In both cases you buy X shares for Y$.
- sokoloff 4y agoImagine you commit to buying $100 on each of date A, B, and C. On A, the price is $10/share. You buy 10 shares. On B, it’s $100/sh. You buy 1 share. On C, it’s $1/sh. You buy 100 shares. You have 111 shares at a cost-basis of $300 (or $2.70/share). The time-weighted average price was $37/share. DCA is a way to force yourself to make purchases at a variety of prices and times. (How likely is it with a single-purchase strategy that you'd own 111 shares at $2.70/sh of a stock that charted $10->$100->$1? How would you feel when you saw your $300 investment go to $111 in value? DCA takes a lot of that psychological pressure off and is amenable to decide-once and automate.)
- DelaneyM 4y ago> DCA takes a lot of that psychological pressure off... Yes, that exactly. It's a psychological trick (if you have all the money upfront) and not a financially sound one.