DCA vs Value Investing

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Saphomd
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Joined: Tue Apr 03, 2012 6:11 pm
Location: SF, CA

DCA vs Value Investing

Post by Saphomd » Mon Dec 19, 2016 3:03 pm

http://www.investopedia.com/articles/st ... cavsva.asp

I was just surfing and found this article. Personally, I DCA every month into the Vanguard 500 Index Admiral Fund and a portion of my paycheck into my 401(k). My question to all Bogleheads out there is: Isn't the purpose of dollar cost averaging to buy shares at a lower price and not now, for example, when the stock market seems to be over-valued? Of course, no one can predict what is going to happen, but, isn't it better to DCA rather than keep a whole a bunch of cash sitting in a MMA for who knows when?

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JoMoney
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Re: DCA vs Value Investing

Post by JoMoney » Mon Dec 19, 2016 4:20 pm

There is a difference between "Value Investing" and "Value Averaging".
I also DCA each paycheck, however you might find some people who don't like using the term DCA for regular periodic investing unless you have a chunk of money sitting on the side that you could optionally "lump sum" all in to the market but are instead DCAing it in. Calling regular investing each paycheck DCA is fine with me, and matches the way it's used in countless other places, but for your awareness there are some who insist that's not DCA.

The reason I DCA, is to make sure the aggregate of my investments is getting an "average" cost. Although it could have the benefit of getting a lower cost IF there are dramatic swings up and down, but it could also be at a higher cost if there is a long stretch of upward or downward momentum in price.... but regardless, it will get me pretty close to the average cost over the period.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Cyclesafe
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Re: DCA vs Value Investing

Post by Cyclesafe » Mon Dec 19, 2016 4:34 pm

Bogleheads believe that market prices are the expectation reflecting all (weighted) non-insider knowledge. Therefore the market is not over- or under-valued - it just is. Tomorrow it will go up or down depending on currently unforeseeable non-insider knowledge. DCA, to a Boglehead, is nothing more than a psychological crutch that some investors may need to get a windfall into the market. On average DCA'ing leaves money during the interim in less volatile investments when one's investment plan's asset allocation would likely call for being more aggressive.

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