Maximizing Dollar Cost Average

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AK59
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Maximizing Dollar Cost Average

Post by AK59 »

Does anyone watch funds they are invested in and buy in on the dips? If so, what percentage or how much of a drop do you want to see before you buy?

Obviously this is a bit more of a proactive approach versus automatic investments, but I am curious what others do or if you have any rules such as 1% drop and I'll buy, etc.
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bertilak
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Re: Maximizing Dollar Cost Average

Post by bertilak »

AK59 wrote: Mon Jun 14, 2021 2:28 pm Does anyone watch funds they are invested in and buy in on the dips? If so, what percentage or how much of a drop do you want to see before you buy?

Obviously this is a bit more of a proactive approach versus automatic investments, but I am curious what others do or if you have any rules such as 1% drop and I'll buy, etc.
Market timing is unreliable. A steady inflow of money (paycheck by paycheck) is the simplest way to go.

Where will you get the extra money to buy extra on the dips? Or do you plan to hold back money from every paycheck to invest only on the dips? In either case you will have money sitting on the sidelines instead of working for you. This is where market timing can go wrong. You may be holding back at a time that, in hindsight, you will see was actually a relatively low point. By then it is too late to "buy low."
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Marseille07
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Re: Maximizing Dollar Cost Average

Post by Marseille07 »

AK59 wrote: Mon Jun 14, 2021 2:28 pm Does anyone watch funds they are invested in and buy in on the dips? If so, what percentage or how much of a drop do you want to see before you buy?

Obviously this is a bit more of a proactive approach versus automatic investments, but I am curious what others do or if you have any rules such as 1% drop and I'll buy, etc.
I do this. I don't have a fixed percentage, it is based on simple TA but acts like buying the dip. Not anything fancy, I'm just adding a kick rather than investing paychecks as soon as possible.
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iceport
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Re: Maximizing Dollar Cost Average

Post by iceport »

AK59 wrote: Mon Jun 14, 2021 2:28 pm Does anyone watch funds they are invested in and buy in on the dips? If so, what percentage or how much of a drop do you want to see before you buy?

Obviously this is a bit more of a proactive approach versus automatic investments, but I am curious what others do or if you have any rules such as 1% drop and I'll buy, etc.
When I was in the accumulation stage, I bought only those assets that were furthest below their targets. But no, I never considered holding back a contribution on the speculation that I might find a slightly better time to deploy a tiny scrap of new funding made available on pay day.

I use re-balancing bands of +/- 20% to trigger re-balancing. If an asset allocation deviates from its target by more than 20%, it's time to think about re-balancing.

Lost of folks also have an additional 5% of portfolio value trigger, but I don't need that because my largest single position is only about 26% of the portfolio, so 20% of that is right in the same ballpark. (Also why I picked 20% instead of the more common 25% for the re-balancing trigger.)
"Discipline matters more than allocation.” ─William Bernstein
edudad
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Re: Maximizing Dollar Cost Average

Post by edudad »

AK59 wrote: Mon Jun 14, 2021 2:28 pm Does anyone watch funds they are invested in and buy in on the dips? If so, what percentage or how much of a drop do you want to see before you buy?

Obviously this is a bit more of a proactive approach versus automatic investments, but I am curious what others do or if you have any rules such as 1% drop and I'll buy, etc.
Usually, watching funds to buy in dip, might not work well in a long run, but, it can, sometimes.

Yes, sometimes, I even make contracts to buy the assets at a pre determined (lower than current) market price. I also get paid to get into the contract.

For example, I am in contract to buy VTI on Jun 18, 2021, for $210. I got paid $200 for going into this contract.
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Brianmcg321
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Re: Maximizing Dollar Cost Average

Post by Brianmcg321 »

If you have money on the sideline waiting for dips, its losing out on all the gains that could be had if it had just been invested all along. The best time to invest is when you have the money. Don't wait for anything.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
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Eagle33
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Re: Maximizing Dollar Cost Average

Post by Eagle33 »

Vanguard did a paper on comparing DCA on a strict calendar schedule vs. holding these DCA dollars until a dip vs holding DCA dollars until the peak. It showed that that buying on the dips slightly beat buying at the peaks. However, the strict DCA schedule beat both of them because of the time in market was greater.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
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AK59
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Re: Maximizing Dollar Cost Average

Post by AK59 »

iceport wrote: Mon Jun 14, 2021 5:00 pm
AK59 wrote: Mon Jun 14, 2021 2:28 pm Does anyone watch funds they are invested in and buy in on the dips? If so, what percentage or how much of a drop do you want to see before you buy?

Obviously this is a bit more of a proactive approach versus automatic investments, but I am curious what others do or if you have any rules such as 1% drop and I'll buy, etc.
When I was in the accumulation stage, I bought only those assets that were furthest below their targets. But no, I never considered holding back a contribution on the speculation that I might find a slightly better time to deploy a tiny scrap of new funding made available on pay day.

I use re-balancing bands of +/- 20% to trigger re-balancing. If an asset allocation deviates from its target by more than 20%, it's time to think about re-balancing.

Lost of folks also have an additional 5% of portfolio value trigger, but I don't need that because my largest single position is only about 26% of the portfolio, so 20% of that is right in the same ballpark. (Also why I picked 20% instead of the more common 25% for the re-balancing trigger.)
To clarify this is not meant to be holding funds to buy when the price drops, but rather if the price drops “x” percentage cash in if you have funds available.
barnaclebob
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Re: Maximizing Dollar Cost Average

Post by barnaclebob »

My money gets invested as soon as it hits my bank account on payday. Waiting for dips is a mental security blanket giving you an illusion that you have some kind of control.
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iceport
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Re: Maximizing Dollar Cost Average

Post by iceport »

AK59 wrote: Mon Jun 14, 2021 11:19 pm To clarify this is not meant to be holding funds to buy when the price drops, but rather if the price drops “x” percentage cash in if you have funds available.
Where did the available funds come from and why aren't they invested yet?

If the price does not drop the specified x%, will you not then continue to hold the available funds to buy when the price drops?

When you say, "cash in" do you mean "buy"?

I really don't know what the proposal is. Thought I did. Sorry.
"Discipline matters more than allocation.” ─William Bernstein
dogagility
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Re: Maximizing Dollar Cost Average

Post by dogagility »

AK59 wrote: Mon Jun 14, 2021 2:28 pm Does anyone watch funds they are invested in and buy in on the dips? If so, what percentage or how much of a drop do you want to see before you buy?

Obviously this is a bit more of a proactive approach versus automatic investments, but I am curious what others do or if you have any rules such as 1% drop and I'll buy, etc.
I don't believe that market timing increases wealth. That dry powder you have... https://actuaryonfire.com/dry-powder/
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
dogagility
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Re: Maximizing Dollar Cost Average

Post by dogagility »

AK59 wrote: Mon Jun 14, 2021 11:19 pm To clarify this is not meant to be holding funds to buy when the price drops, but rather if the price drops “x” percentage cash in if you have funds available.
Where is this available "cash" coming from if it's not invested at your asset allocation but intended to be invested?
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
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RickBoglehead
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Re: Maximizing Dollar Cost Average

Post by RickBoglehead »

The only reason to DCA is because your funds come in a paycheck. Otherwise, DCA loses to lump sum 67% of the time.
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Wiggums
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Re: Maximizing Dollar Cost Average

Post by Wiggums »

We buy weekly as funds are available. No magic to weekly. I have purchased more stock during selloffs. It makes you feel good, but it’s a small part of the overall portfolio.
Triple digit golfer
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Re: Maximizing Dollar Cost Average

Post by Triple digit golfer »

This is not a good strategy. Markets move up more than they move down. By doing this, on average, you will have lower returns compared to simply investing as soon as you have the money.
Jonbuck
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Re: Maximizing Dollar Cost Average

Post by Jonbuck »

I understand the temptation of waiting on dips in the market to purchase if you were going to be purchasing anyways. However, in my experience, I have always found it mentally taxing and not worth the stress or worry of wondering if I purchased on the right day and the right time of the day as I purchase ETF shares primarily.

For me, my retirement accounts are DCA'd through new purchases whenever my paychecks are given, of which I do not worry about the price per share. In my brokerage account I have not really DCA'd, but rather use the account to invest when I have extra cash that I want to deploy into investments rather than sitting around in my checking or savings account.

The way this strategy works for me is as follows: (while not dollar cost averaging, it is a process that is more or less just invest when you have the money)

- Auto invest extra cash from checking account each month into a HY savings account.
- Once the HY savings account (which is my emergency fund) meets a certain threshold (currently above 1 years living expenses) I will then transfer the money that is above that threshold to my brokerage account.
- Once money clears in my brokerage account I deploy the money into investments based on my Asset Allocation.
- I then re-evaluate how much and with what consistency I am investing into my brokerage account every 6 months, if I am consistently deploying money into the brokerage I will boost my 457 account which in turn will help me continue to build my tax sheltered investments.

While others may have a better plan, this plan has felt rather simple to me, requires very little time, and has worked for us to increase our net worth significantly and intentionally over the last 3 years. The step by step process has helped me reduce the emotions of whether or not I should buy on a dip or wait to purchase. Instead, I just deploy the money systematically and don't worry about it.
Topic Author
AK59
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Re: Maximizing Dollar Cost Average

Post by AK59 »

iceport wrote: Tue Jun 15, 2021 2:45 am
AK59 wrote: Mon Jun 14, 2021 11:19 pm To clarify this is not meant to be holding funds to buy when the price drops, but rather if the price drops “x” percentage cash in if you have funds available.
Where did the available funds come from and why aren't they invested yet?

If the price does not drop the specified x%, will you not then continue to hold the available funds to buy when the price drops?

When you say, "cash in" do you mean "buy"?

I really don't know what the proposal is. Thought I did. Sorry.
I guess I should clarify better.

I max out all retirement accounts and invest in my IRA weekly.

In this case all cash I have planned for investments goes in immediately it's received.

However, if I see VOO drop 3% now I look at it such as where is my money best invested today, dinner with wife or take that $50-100 and buy the market on sale.

It's not money I am holding or waiting to buy the dip, it's cash that I will spend however I want and look for the best opportunity to maximize it.
h82goslw
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Re: Maximizing Dollar Cost Average

Post by h82goslw »

AK59 wrote: Tue Jun 15, 2021 11:56 am
iceport wrote: Tue Jun 15, 2021 2:45 am
AK59 wrote: Mon Jun 14, 2021 11:19 pm To clarify this is not meant to be holding funds to buy when the price drops, but rather if the price drops “x” percentage cash in if you have funds available.
Where did the available funds come from and why aren't they invested yet?

If the price does not drop the specified x%, will you not then continue to hold the available funds to buy when the price drops?

When you say, "cash in" do you mean "buy"?

I really don't know what the proposal is. Thought I did. Sorry.
I guess I should clarify better.

I max out all retirement accounts and invest in my IRA weekly.

In this case all cash I have planned for investments goes in immediately it's received.

However, if I see VOO drop 3% now I look at it such as where is my money best invested today, dinner with wife or take that $50-100 and buy the market on sale.

It's not money I am holding or waiting to buy the dip, it's cash that I will spend however I want and look for the best opportunity to maximize it.
If you’ve already maxed out all retirement accounts, dinner with the wife is always going to be the right choice.
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iceport
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Re: Maximizing Dollar Cost Average

Post by iceport »

AK59 wrote: Tue Jun 15, 2021 11:56 am I guess I should clarify better.

I max out all retirement accounts and invest in my IRA weekly.

In this case all cash I have planned for investments goes in immediately it's received.

However, if I see VOO drop 3% now I look at it such as where is my money best invested today, dinner with wife or take that $50-100 and buy the market on sale.

It's not money I am holding or waiting to buy the dip, it's cash that I will spend however I want and look for the best opportunity to maximize it.
Oooohhh, okay, got it! That helps!

No, I've never done that, either, but it sure could improve your savings rate over time, if not the portfolio returns by much. Interesting approach!

Once I maxed out my savings rate, including spill-over into a taxable account, it was all automated, and I felt like anything I had leftover was fair game for instant gratification. (And I'd hate to have to tell my SO to watch the cable news tickers to find out if she should dress for dinner that night. :shock: :wink: :P )
"Discipline matters more than allocation.” ─William Bernstein
dogagility
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Re: Maximizing Dollar Cost Average

Post by dogagility »

h82goslw wrote: Tue Jun 15, 2021 12:17 pm If you’ve already maxed out all retirement accounts, dinner with the wife is always going to be the right choice.

Preach! :sharebeer
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
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tadamsmar
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Re: Maximizing Dollar Cost Average

Post by tadamsmar »

AK59 wrote: Tue Jun 15, 2021 11:56 am
iceport wrote: Tue Jun 15, 2021 2:45 am
AK59 wrote: Mon Jun 14, 2021 11:19 pm To clarify this is not meant to be holding funds to buy when the price drops, but rather if the price drops “x” percentage cash in if you have funds available.
Where did the available funds come from and why aren't they invested yet?

If the price does not drop the specified x%, will you not then continue to hold the available funds to buy when the price drops?

When you say, "cash in" do you mean "buy"?

I really don't know what the proposal is. Thought I did. Sorry.
I guess I should clarify better.

I max out all retirement accounts and invest in my IRA weekly.

In this case all cash I have planned for investments goes in immediately it's received.

However, if I see VOO drop 3% now I look at it such as where is my money best invested today, dinner with wife or take that $50-100 and buy the market on sale.
You are buying on a drop, you are not buying on a dip.
It's not money I am holding or waiting to buy the dip, it's cash that I will spend however I want and look for the best opportunity to maximize it.
Try to gain an understanding of the fact that the terms/concepts "drop" and "dip" have different meanings.

If you think about it clearly, then you will see that you can't actually buy on a dip unless you are in possession of a time-machine.
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