dollar cost averaging q (fund, cash, commission, invest)

[boatshoe]

If you had a lump sum that you wanted to invest in a no-commission index-tracking ETF, does it make more sense to buy into it all at once or to spread the buy-in out over the course of say a year?

[Lowexpectations]

It depends on your risk level but over the long haul just plugging it in all at once is usually better than spending years putting it to work


DATAQUEST

[boatshoe]

Thanks, that was my suspicion. Very useful link.

[bmw335xi]

I personally would put it all in at once, than gradually buy more throughout the year with future savings. If the market crashes, don't sell, but instead of buying more shares, let it build up and buy after the market has declined 50% or when a real recovery seems to be in the works.

[TwoByFour]

To answer your question, need to understand what your concern is:

If you are mostly worried about risk, i.e., putting all your eggs in one basket, then don't even think about buying more of the ETF and look for other risk-mitigating investments rather than pouring more money into the ETF.

If you don't care about risk and are just wondering if it is better to dribble money into a particular investment, then the answer is that since you believe the investment is a good one now (otherwise why are you buying it), then put all your money into it now. If you aren't sure how good it is, then we are back to the previous approach of risk avoidance.

You should avoid sitting on cash unless you think the market as a whole is more risky than the cost of sitting on the cash (loss due to inflation). It does no good to sit on cash while you waffle about a particular stock or fund.

[mathjak107]

typically markets are up 2/3's of the time and down only 1/3 so odds are you will be buying less and less shares as time goes on with dollar cost averaging.

you can data mine select time frames and dca would have done well but for the most part it has not performed as well as lump sum investing .

ever wonder why if dollar cost averaging worked we don't sell all our holdings when we reach an allocation goal and start over again from zero?

because it really would be a poor way to grow money.

dca is for those who are afraid to invest in markets and afraid to commit but it can come at a price.

[tommy64]

The course of a year is probably not long enough to take advantage of most economic cycles, which run typically 5-7 years.

Put it at once, or expand the dollar cost averaging out to a minimum of 5 years.

[tommy64]

Originally Posted by mathjak107

typically markets are up 2/3's of the time and down only 1/3 so odds are you will be buying less and less shares as time goes on with dollar cost averaging.

you can data mine select time frames and dca would have done well but for the most part it has not performed as well as lump sum investing .

ever wonder why if dollar cost averaging worked we don't sell all our holdings when we reach an allocation goal and start over again from zero?

because it really would be a poor way to grow money.

dca is for those who are afraid to invest in markets and afraid to commit but it can come at a price.

"dca is for those who are afraid to invest in markets"

That's right, and dca is a great way to manage risk.

[Lowexpectations]

Originally Posted by tommy64

The course of a year is probably not long enough to take advantage of most economic cycles, which run typically 5-7 years.

Put it at once, or expand the dollar cost averaging out to a minimum of 5 years.

Dca out past two years is not a good idea and extending out to 5+ is a terrible idea

[Big G]

Here ya go:

https://pressroom.vanguard.com/nonin..._Averaging.pdf


tl;dr version:

If you have the lump sum in hand (a "stock" of money), dumping it all in at once has been, in historical hindsight, the right call about 2/3 of the time. DCA works better only 1/3 of the time. On average, the lost revenue from all the cash drag as you're dribbling it in outweighs the minority of times where you are able to get a lower average buy-in cost.

Unless the "psychic revenue" of regret aversion (from the possibility of buying in, then having the market crash the next day) can make up that difference, the raw numbers say to take the leap.

Thing is, having a big pile of money all at once is relatively rare. Most people have a "flow" of money from monthly income, not a "stock". DCA does outperform one-time investing with a flow of income. But in that case, you're really doing the same thing - putting it in as soon as you get your hands on the cash each month, rather than accumulating it and trying to time the entry point.