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Dollar Cost Averaging a lump sum might reduce your risk while you're averaging in, but why weren't you happy with the risk/return profile in the first place? An
by ljsb 3y ago
Dollar Cost Averaging a lump sum might reduce your risk while you're averaging in, but why weren't you happy with the risk/return profile in the first place? And are you happy with increasingly higher risk/return as you commit more of your lump sum? Isn't it better to pick a portfolio with a risk profile you're happy with in the first place, then commit your entire lump sum?
- cj 3y ago> Dollar Cost Averaging a lump sum might reduce your risk while you're averaging in, but why weren't you happy with the risk/return profile in the first place? If I suddenly inherited $1m in cash and I planned out my desired portfolio allocation, I would want to enter into it over the course of at least a couple months because: 1) Interest rates are so high, you'd still be doing well earning 5% interest with the money parked in money market / bond / treasury ETFs. This significantly reduces the opportunity cost of waiting to invest the money or entering into a position slowly over time. 2) Markets fluctuate on a day to day basis often in response to things like fed meetings, jobs reports, earnings announcements, etc. You can average out the volatility by entering into the position over a few months (which, again, due to high interest on extremely low-risk cash/treasuries/bonds returning ~5% currently, the opportunity cost is minimal).