Comments on: Pros and Cons of Dollar Cost Averaging

By: Dokuen

Dokuen — Tue, 10 Nov 2009 15:38:49 +0000

DGI, without reading your report and assumptions it is impossible for us accept your claims on faith. I assume that you assumed (here we go) each investor had a lump sum available to invest. For example, given 2 investors with $10k did you assume the DCA investor held their funds in a non-interest bearing account while buying shares on a monthly basis and the LS investor put it all in the market? Not really a fair comparison if that is your case. When I have a lump sum, I put it in the market…when I don’t I DCA. I constantly buy stocks. Yes, I kept buying while the market tumbled and I am still buying now. I have yet to find anyone that can consistently beat DCA over time by timing the market.

By: dan

dan — Fri, 21 Nov 2008 17:39:59 +0000

Its called INVESTING not GAMBLING! We dont ask our broker to put it all on #7 and spin the wheel. I like the idea of DCA! As Andy (above) mentioned “right now was not the time for investing and just to stay out of the markets for now!, I ask when is the bottom?

Yes there are good points and bad, but at the end of the day just think if andy would have bought through a DCA program over the last twelve months he would be much happier and not terrified from times to come as the market comes back over time. Also, some investors dont have a lump of 10K+. its an option as opposed to an obligation!

By: Ryan

Ryan — Mon, 13 Oct 2008 02:14:06 +0000

DGI: I think that is the point – for most people, DCA is the easiest way to invest (especially for 401(k) plans which require payroll deductions). Set it up once and forget about it until it is time to do an annual portfolio rebalance. For those who actively trade and invest (such as yourself), DCA is probably not the way to go. I’m in favor of DCA if it means someone will invest rather than spend the money without thinking about it.

By: Dividend Growth Investor

Dividend Growth Investor — Sun, 12 Oct 2008 23:18:04 +0000

I did a study on DCA using historical prices from VFINX ( Vanguard S&P 500 mutual fund) from 1988-2007 and concluded that dollar cost averaging doesn’t work most of the time. It only outperformed a lump sum investment for contributions beginning in 1994, 2001, 2002 and 2008.
Anyways, it’s still being done however, as most people get their retirement contributions every other week or every month from their paychecks..

By: Ryan

Ryan — Fri, 10 Oct 2008 03:36:51 +0000

Eric: True, but it can work the opposite way as well. I think for most people it is just the easiest way to incorporate investing into their habits (payroll deductions for a 401(k) are a prime example).

Andy: The problem with that approach is that it relies on timing the market and many people don’t know enough about the market to know when it has bottomed out. DCA allows people without much investing knowledge to put in money when they have it instead of trying to time the market. If you are a serious investor and are well versed in the markets, then lump sum investing is probably a better bet.

By: Andy

Andy — Thu, 09 Oct 2008 21:10:41 +0000

Good concept but in today’s market where we are seeing huge falls, DCA may not be the best approach. Wait till the bottom (or when things stabalize from the near panic we are in) and then do a lump sum investment. Or even better just stay out of the market for now!

By: Eric

Eric — Thu, 09 Oct 2008 12:14:33 +0000

I like the example in the intelligent investor where graham talks about lumping a single time investment of 10k into the market in the 1920’s, verse stretching that investment out over time. It really highlights the benefits of dollar cost averaging and how it not only limits you losses when the market takes a hit, but can actually increase your investments value.