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If you make a salary from your job, dollar cost averaging makes more sense than saving up your salary and then lump sum investing it at some point in time. Ran

by 65 3y ago

If you make a salary from your job, dollar cost averaging makes more sense than saving up your salary and then lump sum investing it at some point in time. Randomly getting a huge lump sum of money would only happen very rarely. In reality, investing your paycheck each week is a much better method of investing than either trying to play the market or saving up in a low yield savings account. This is horrible advice for the vast majority of investors who are getting paychecks each week. Just because it's on the front page of Hacker News does not mean it's true.

embwbam 3y ago
This usually comes up because people procrastinate investing and end up with a large amount of money sitting idle. They have anxiety about how to put it into the markets. Saving with each paycheck isn’t dollar cost averaging. It’s lump sum. DCA would be something like putting 1/4 of your total savings every week. Anyway, in my experience this situation comes up a lot due to the above
- AlbertCory 3y ago
  How is putting 10% of your salary each paycheck NOT dollar-cost averaging? Let's assume you're just buying a broad-based index fund. The same amount of money buys fewer shares when the index is up, and more when it's down. That is the very definition of DCA.
rflrob 3y ago
The introduction (but nowhere in the rest of the article) makes a distinction between Dollar Cost Averaging (where you spread out a windfall over some period of time) and systematic investing (SI; where you regularly invest income as you get it). I suspect the author would not advocate for saving up your weekly paycheck and investing it as a large chunk. > The difference between DCA and SI is that in DCA you have all the money available since the beginning, but in SI you have to wait until the next month to have access to the quantity to be invested.
alexmolas 3y ago
This is why in the post I differentiate between dollar cost averaging and systematic investment. Investing a part of your salary every month is basically the same as lump sum. I don't defend in any moment to save money during the year and invest it after some months. Actually, my advice is to invest the most you can as soon as you can. And in many cases this means to invest a fixed amount of money every month.
stouset 3y ago
> If you make a salary from your job, dollar cost averaging makes more sense than saving up your salary and then lump sum investing it at some point in time. Pedantically, many believe that this is not actually DCA. DCA is a strategy that is a counterpoint to lump sum investing. From that perspective, the common factor required by both strategies is that you actually have a lump sum to invest. Investing every month as you earn money, assuming you never had enough to do a lump sum isn’t considered DCA from this perspective because there was no alternative to lump sum invest. I do adhere to this thinking, and I think it would be useful to have a term for each of these three options. Unfortunately nobody’s proposed one that’s stuck for what you’re describing, so an endless debate rages on financial subreddits whenever this comes up. I only bring this up because whenever people talk about DCA, there is an implicit assumption that they’re discussing from the perspective of their definition of the term. The article is—I assume—using the definition I described. Because yes, saving up your money to invest in one go at the end is categorically the worst option, and silly enough a strategy that it doesn’t often warrant mention or discussion.

by 65 3y ago

embwbam 3y ago

This usually comes up because people procrastinate investing and end up with a large amount of money sitting idle. They have anxiety about how to put it into the markets. Saving with each paycheck isn’t dollar cost averaging. It’s lump sum. DCA would be something like putting 1/4 of your total savings every week. Anyway, in my experience this situation comes up a lot due to the above

AlbertCory 3y ago
How is putting 10% of your salary each paycheck NOT dollar-cost averaging? Let's assume you're just buying a broad-based index fund. The same amount of money buys fewer shares when the index is up, and more when it's down. That is the very definition of DCA.

rflrob 3y ago

The introduction (but nowhere in the rest of the article) makes a distinction between Dollar Cost Averaging (where you spread out a windfall over some period of time) and systematic investing (SI; where you regularly invest income as you get it). I suspect the author would not advocate for saving up your weekly paycheck and investing it as a large chunk. > The difference between DCA and SI is that in DCA you have all the money available since the beginning, but in SI you have to wait until the next month to have access to the quantity to be invested.

alexmolas 3y ago

This is why in the post I differentiate between dollar cost averaging and systematic investment. Investing a part of your salary every month is basically the same as lump sum. I don't defend in any moment to save money during the year and invest it after some months. Actually, my advice is to invest the most you can as soon as you can. And in many cases this means to invest a fixed amount of money every month.

stouset 3y ago

> If you make a salary from your job, dollar cost averaging makes more sense than saving up your salary and then lump sum investing it at some point in time. Pedantically, many believe that this is not actually DCA. DCA is a strategy that is a counterpoint to lump sum investing. From that perspective, the common factor required by both strategies is that you actually have a lump sum to invest. Investing every month as you earn money, assuming you never had enough to do a lump sum isn’t considered DCA from this perspective because there was no alternative to lump sum invest. I do adhere to this thinking, and I think it would be useful to have a term for each of these three options. Unfortunately nobody’s proposed one that’s stuck for what you’re describing, so an endless debate rages on financial subreddits whenever this comes up. I only bring this up because whenever people talk about DCA, there is an implicit assumption that they’re discussing from the perspective of their definition of the term. The article is—I assume—using the definition I described. Because yes, saving up your money to invest in one go at the end is categorically the worst option, and silly enough a strategy that it doesn’t often warrant mention or discussion.