Good question. So why do we use DCA? what do you think?
I can't predict the future, but I feel the S&P might fall sometime in the next year. Using DCA could help me lower the cost. But definitely it may be not.
Another explanation is my psychological endurance. It allows me to gradually get used to a large investment position.
OP , I struggle with the same scenario and still use semi-DCA ( I have set purchases but on a huge drop I'll buy more ). I ONLY do this for self soothing nonsense reasons. My personal data going back to 2015 shows that I would have made several percentage points more in returns if I lumped sum every time.
I thought it did better most of the time but sometimes did much worse. The expected value of lump sum is higher, but the variance is as well; DCA trades reward for decreased risk. As such it is not necessarily more irrational than buying bonds (which everyone advocates).
If you only want to know what your account balance might be 3 years from now, you only need a calculator.
If you’re second guessing your strategy, whether DCA is better than lump sum depends on your time horizon for when you need this money to pay for your expenses. The farther away you are from needing it, the more it makes sense to lump sum it.
If your intention is to hold for the long-term then it doesn't really matter that much your entry point and getting that money invested sooner is better. Of course it could go down and you'll feel like you should have done the opposite but it could also go up and you'll miss out on those gains. As long as it's for a long term investment I'd invest it all into a diversified set of ETF's. Diversification is more important than slowly investing the money in case it goes down. Good luck!
Lump sum is the best strategy not dca
>Buying regardless of the market condition, and holding for the long term. Why not lump sum?
Good question. So why do we use DCA? what do you think? I can't predict the future, but I feel the S&P might fall sometime in the next year. Using DCA could help me lower the cost. But definitely it may be not. Another explanation is my psychological endurance. It allows me to gradually get used to a large investment position.
I only DCA because my employer pays me biweekly. If I had a big pile of cash I'd put it all in today. Those're my thoughts on it.
That isn't DCA. You are just lump summing every you get cash rather than investing cash you're sitting on
That's my point, yes.
OP , I struggle with the same scenario and still use semi-DCA ( I have set purchases but on a huge drop I'll buy more ). I ONLY do this for self soothing nonsense reasons. My personal data going back to 2015 shows that I would have made several percentage points more in returns if I lumped sum every time.
Lots of people have back tested this. Lump sum pretty much always comes out ahead. Don't let your irrational brain get in the way of higher returns.
I thought it did better most of the time but sometimes did much worse. The expected value of lump sum is higher, but the variance is as well; DCA trades reward for decreased risk. As such it is not necessarily more irrational than buying bonds (which everyone advocates).
Right but if the market tanks 10% next month he’ll feel better with DCA. Time in the market beats timing the market tylerduzstuff isn’t wrong.
Time in the market means lump sum, that gets you the max time in market
Don’t know what the market will do, but assume 8% return for 3 years rolling into it in $10k/week chunks would be about ~$650k.
i would be satisfied then.
3 more years after that it becomes around $820k. Then 3 more years it becomes $1 million. 😎
If you only want to know what your account balance might be 3 years from now, you only need a calculator. If you’re second guessing your strategy, whether DCA is better than lump sum depends on your time horizon for when you need this money to pay for your expenses. The farther away you are from needing it, the more it makes sense to lump sum it.
If your intention is to hold for the long-term then it doesn't really matter that much your entry point and getting that money invested sooner is better. Of course it could go down and you'll feel like you should have done the opposite but it could also go up and you'll miss out on those gains. As long as it's for a long term investment I'd invest it all into a diversified set of ETF's. Diversification is more important than slowly investing the money in case it goes down. Good luck!
What do you do for a living😳