Dollar Cost Averaging or Lump Sum in Current Market

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CloudStrife1990
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Dollar Cost Averaging or Lump Sum in Current Market

Post by CloudStrife1990 » Mon Nov 26, 2018 4:03 am

Hey Guys!

Hope someone can offer some advice. I've got around 40-50k to invest in Vanguard index funds and I'm wondering if it is better to invest the whole amount all at once or do 5k monthly?

I know its difficult to predict and this enters the territory of market prediction etc. but just wondering on your thoughts...

I plan on doing it lump sum as I plan to invest this "forever". Does anyone have any conflicting views?

terran
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by terran » Mon Nov 26, 2018 8:23 am

Lump sum investing outperforms dollar cost averaging 67% of the time: https://personal.vanguard.com/pdf/ISGDCA.pdf

So on average lump sum is the way to go. Anything else is simply market timing under a different name. No one knows what is going to happen in the future.

That said, dollar cost averaging can be a good regret minimization strategy. Which is to say, it's not mathematically optimal, but if it makes you less skittish about investing it could still be a good thing. Whatever method gets you invested the fastest (given your own personal investing psychology) is, on average, going to be the best strategy.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by dwickenh » Mon Nov 26, 2018 8:26 am

CloudStrife1990 wrote:
Mon Nov 26, 2018 4:03 am
Hey Guys!

Hope someone can offer some advice. I've got around 40-50k to invest in Vanguard index funds and I'm wondering if it is better to invest the whole amount all at once or do 5k monthly?

I know its difficult to predict and this enters the territory of market prediction etc. but just wondering on your thoughts...

I plan on doing it lump sum as I plan to invest this "forever". Does anyone have any conflicting views?
It might make a difference to me if this amount was 10% or 50% of my total assets. At 10%, I would lump sum it for sure.
At 50%, I might look for some emotional protection and dollar cost average over 12 months.

No one knows what the market will do from here, so your chances of being right are about even with being "wrong".

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Earl Lemongrab
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Earl Lemongrab » Mon Nov 26, 2018 2:42 pm

I point this out frequently. Absent taxes, there is no difference between holding cash and selling existing stocks. Between my 40(k) and Roth IRA, I have about 400k in stock ETFs and funds. So every day that I don't sell those, I lump sum that amount into the current market. If you think DCA would make sense, then it would make sense for me to sell all of that and DCA in.

Also, if you DCA for a month or two, and nothing much changes in the market, would you sell and start DCA all over? If not, why not? People too frequently anchor on the current form of the asset. You have to accept that the market has risk and it isn't going to tap you on the shoulder and say, "Gettin' ready to drop big time, get out now!"

I put together my portfolio and brought in a bunch of cash to implement the new investment plan, in fall of 2007. Right before one of the most brutal bear markets ever. It happens. I followed the plan, rebalance, did tax-loss harvesting, rode it out.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by MotoTrojan » Mon Nov 26, 2018 3:14 pm

Earl Lemongrab wrote:
Mon Nov 26, 2018 2:42 pm
I point this out frequently. Absent taxes, there is no difference between holding cash and selling existing stocks. Between my 40(k) and Roth IRA, I have about 400k in stock ETFs and funds. So every day that I don't sell those, I lump sum that amount into the current market. If you think DCA would make sense, then it would make sense for me to sell all of that and DCA in.

Also, if you DCA for a month or two, and nothing much changes in the market, would you sell and start DCA all over? If not, why not? People too frequently anchor on the current form of the asset. You have to accept that the market has risk and it isn't going to tap you on the shoulder and say, "Gettin' ready to drop big time, get out now!"

I put together my portfolio and brought in a bunch of cash to implement the new investment plan, in fall of 2007. Right before one of the most brutal bear markets ever. It happens. I followed the plan, rebalance, did tax-loss harvesting, rode it out.
This. We are all lump-summing every day. I invest the moment I can and suggest you do as well, if you can handle it emotionally.

Research tax-loss harvesting; it'll make you feel better if/when you take a loss.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by nesdog » Mon Nov 26, 2018 3:25 pm

I'm in a similar position. We were in the midst of a rollover IRA from another firm to FIDO. While the funds were in transit and not invested, the market dropped. (transfer took days and days...). Now that we have the account set up and ready to go, we do need to move money into the appropriate equity choices as per our planned AA. We have decided to wait until the first of the year and then likely go lump sum. We know the stats LS/DCA, etc. but it makes us feel better! (especially being a year from retirement).


The amount represents about 10% of our total.
Insert clever comment here...

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by MRMN » Mon Nov 26, 2018 3:50 pm

If your hesitant to do the lump, could you do best of both worlds and build a short-term CD ladder for next 6-24 months with the current rates? Then DCA the modest returns along the way? Probably better than letting cash sit idle while you try and time the market.

JustinR
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by JustinR » Mon Nov 26, 2018 3:53 pm

Lump sum.

DCA as a strategy isnt based on any logic whatsoever.

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CloudStrife1990
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by CloudStrife1990 » Mon Dec 03, 2018 6:21 am

Thank you all for your responses. Sorry for not replying earlier.

Gives me a bit of confidence going ahead and investing everything at once.

FYI, I'm 28 with no debt (no house either! Was saving up for a deposit but decided against it) - I think for the next few years I'm going to pump money into the index fund until the housing market calms down. I'm living in Australia btw.

Thanks for your input everyone!

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Mako52 » Mon Dec 03, 2018 7:41 am

If you had lump summed a significant chunk of your taxable assets in your mid 20s in 1998 into an S&P fund as I did, and waited 12 years for it to recover to its original investment value, you might have a different view of lump sum.

I like my stocks to be diversified, and it's not a bad thing to have somewhat diversified purchase pricing. Lump Sum leads to coulda/shoulda thinking in my experience.
Last edited by Mako52 on Mon Dec 03, 2018 9:24 am, edited 1 time in total.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by smarcus3 » Mon Dec 03, 2018 8:34 am

CloudStrife1990 wrote:
Mon Dec 03, 2018 6:21 am
Thank you all for your responses. Sorry for not replying earlier.

Gives me a bit of confidence going ahead and investing everything at once.

FYI, I'm 28 with no debt (no house either! Was saving up for a deposit but decided against it) - I think for the next few years I'm going to pump money into the index fund until the housing market calms down. I'm living in Australia btw.

Thanks for your input everyone!
I am in a similar position as you. After doing some analysis on home ownership over a year ago I invested the down payment fund into the market. In my current real estate market I can rent forever and be better than owning a similarly priced home.

Here's the link to my buy vs rent comparison - https://drive.google.com/file/d/1MuTj6- ... sp=sharing
This is my personal opinion. I'm an engineer not a financial advisor.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Crisium » Mon Dec 03, 2018 9:54 am

Mako52 wrote:
Mon Dec 03, 2018 7:41 am
If you had lump summed a significant chunk of your taxable assets in your mid 20s in 1998 into an S&P fund as I did, and waited 12 years for it to recover to its original investment value, you might have a different view of lump sum.

I like my stocks to be diversified, and it's not a bad thing to have somewhat diversified purchase pricing. Lump Sum leads to coulda/shoulda thinking in my experience.
But the market continued to rise in 1999 and into mid 2000. A 12 month DCA in 1998 would have done worse. Even a 2 year DCA would have been worse than a lump sum in 1998!

That's the overlooked risk in DCA. If the market rises most of your DCA and THEN declines towards or after the end, you have done worse than lump sum early on.

You made the right choice. Heck, if you invested in early January 1998 then your lump sum beat pretty much any DCA (although doing bonds only and market time shifting to late 2002 to early 2003 would have beaten your lump sum).

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by smarcus3 » Mon Dec 03, 2018 10:10 am

If you don't get emotionally destroyed my market downturns and that markets have historically risen you want to get in ASAP.

DCA is forced upon everyone as we don't get paid annually by our employer on January 1st but slowly throughout the year. You have no choice in your 401(k) to do so.
This is my personal opinion. I'm an engineer not a financial advisor.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Psyayeayeduck » Mon Dec 03, 2018 10:55 am

I do a combination of both where I have a regularly scheduled deposit but throw in a lump sum once in a while until I hit my limits. It's a compromised middle. Might not get the A+ of investment returns but I rather get a passing grade than a failing one.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Ben Mathew » Mon Dec 03, 2018 11:04 am

As Earl Lemongrab said upthread, if DCA is a good idea, we should sell investments everyday and DCA back. And then sell again? It doesn't make any sense. Lump sum is the way to go. The psychological comfort obtained from DCA comes at the cost of increased risk and/or decreased reward.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by WhiteMaxima » Mon Dec 03, 2018 11:40 am

Always Dollar cost average in and out.

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Earl Lemongrab
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Earl Lemongrab » Mon Dec 03, 2018 12:20 pm

WhiteMaxima wrote:
Mon Dec 03, 2018 11:40 am
Always Dollar cost average in and out.
Never DCA in or out.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by bertilak » Mon Dec 03, 2018 12:53 pm

smarcus3 wrote:
Mon Dec 03, 2018 10:10 am
DCA is forced upon everyone as we don't get paid annually by our employer on January 1st but slowly throughout the year. You have no choice in your 401(k) to do so.
In a like manner, If we could invest our life-time savings at the beginning of our earning years (say at age 20) that would be a lump sum investment to beat any form of DCA! We only DCA over the years because we have no choice. We would gladly lump sum if we had all the money available up front, at the beginning. Any time you can invest at the beginning of a period instead of waiting for the end you are better off. (This does assume our form of economy is generally favorable to investing, but what else have you got?)

Remember, no matter when you invest things can work out poorly. You just gotta go with the odds and the sooner you invest, the more favorable the odds.

Overall, DCA is a bad idea (least favorable odds) so why volunteer for it when you don't need to?
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Earl Lemongrab
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Earl Lemongrab » Mon Dec 03, 2018 1:19 pm

smarcus3 wrote:
Mon Dec 03, 2018 10:10 am
DCA is forced upon everyone as we don't get paid annually by our employer on January 1st but slowly throughout the year. You have no choice in your 401(k) to do so.
That's not DCA. It's a series of lump sum investments as it's not part larger sum held back in cash.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by bertilak » Mon Dec 03, 2018 1:33 pm

Earl Lemongrab wrote:
Mon Dec 03, 2018 1:19 pm
smarcus3 wrote:
Mon Dec 03, 2018 10:10 am
DCA is forced upon everyone as we don't get paid annually by our employer on January 1st but slowly throughout the year. You have no choice in your 401(k) to do so.
That's not DCA. It's a series of lump sum investments as it's not part larger sum held back in cash.
I'm flexible in that distinction, just because so many people conflate the two. I agree that the main point of contention is the holding back, but that point is often ignored and the success of periodic investing is often quoted as a positive example (proof?) of the benefits DCA. I tried to sidestep that in my previous post.
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Ben Mathew » Mon Dec 03, 2018 1:49 pm

bertilak wrote:
Mon Dec 03, 2018 1:33 pm
Earl Lemongrab wrote:
Mon Dec 03, 2018 1:19 pm
smarcus3 wrote:
Mon Dec 03, 2018 10:10 am
DCA is forced upon everyone as we don't get paid annually by our employer on January 1st but slowly throughout the year. You have no choice in your 401(k) to do so.
That's not DCA. It's a series of lump sum investments as it's not part larger sum held back in cash.
I'm flexible in that distinction, just because so many people conflate the two. I agree that the main point of contention is the holding back, but that point is often ignored and the success of periodic investing is often quoted as a positive example (proof?) of the benefits DCA. I tried to sidestep that in my previous post.
Yes, ideally the term DCA would only refer to voluntarily withholding funds available for investing. But it is used to describe situations where it's not voluntary. I have read it in print. Can't recall where exactly, but the author was stating that investing over a lifetime is not so risky because you don't invest all your income at once. This was described as risk reduction from dollar cost averaging. even though it wasn't voluntary.


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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by pennylane » Mon Dec 03, 2018 2:18 pm

Roll a dice, 1-4 you win, 5-6 you loose. You feeling lucky?

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Earl Lemongrab » Mon Dec 03, 2018 2:20 pm

Ben Mathew wrote:
Mon Dec 03, 2018 1:49 pm
Yes, ideally the term DCA would only refer to voluntarily withholding funds available for investing. But it is used to describe situations where it's not voluntary. I have read it in print. Can't recall where exactly, but the author was stating that investing over a lifetime is not so risky because you don't invest all your income at once. This was described as risk reduction from dollar cost averaging. even though it wasn't voluntary.
But it's irrelevant, as there's no option. The usual question is, "DCA or lump sum?" Well, there is no lump sum, other than the small amount available at that time to invest. Certainly some of the supposed effects of DCA happen (buying more when the market it down, less when it's up) happen, but that's just part of the process of investing over a lifetime.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Crisium » Mon Dec 03, 2018 2:24 pm

A lump sum on April 18th (article date) would have outperformed a DCA from April 18th and every following ~18th of the month so far through November. An investor who was about to do lump sum on the day and instead heeded advice to DCA is now worse off for it.

Yes it could have gone the other way around, but not in equal chances. Lump sum beats DCA about 2/3 of the time. Why DCA and gamble on only a 1/3 chance of better performance?
Last edited by Crisium on Mon Dec 03, 2018 2:27 pm, edited 2 times in total.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by pdavi21 » Mon Dec 03, 2018 2:26 pm

If you believe your current investment will beat stocks, why haven't you sold all of your stock holdings to buy more of the asset you are in? It's because you are smart, and market timing is bad.

DCA in this case is not DCA. It's market timing. Only time DCA is suitable for big income gains is when they are expected (i.e. bonuses and tax returns). I'd advise all other deviations from target AA be dealt with immediately or on your regular re-balancing interval (if applicable).
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by stocknoob4111 » Mon Dec 03, 2018 2:50 pm

earlier this year I had the same question. I chose not to DCA and rather lumpsum for a key reason. If you're thinking of DCA then some element of market timing is on your mind. This could lead to detrimental decisions such as trying to stop your contributions when the market is going down etc. How many people with a DCA plan stick to it? What if the market is falling and you try to outsmart it and end up losing in the process? From all the advice I got it was that lumpsum is better to avoid such things, expose as much capital to the markets as you have available for the maximum amount of time rather than trying to time the market.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by bertilak » Mon Dec 03, 2018 4:06 pm

stocknoob4111 wrote:
Mon Dec 03, 2018 2:50 pm
... expose as much capital to the markets as you have available for the maximum amount of time ...
Another good way of putting it.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by ruralavalon » Mon Dec 03, 2018 5:43 pm

CloudStrife1990 wrote:
Mon Nov 26, 2018 4:03 am
Hey Guys!

Hope someone can offer some advice. I've got around 40-50k to invest in Vanguard index funds and I'm wondering if it is better to invest the whole amount all at once or do 5k monthly?

I know its difficult to predict and this enters the territory of market prediction etc. but just wondering on your thoughts...

I plan on doing it lump sum as I plan to invest this "forever". Does anyone have any conflicting views?
I think you are right.

My suggestion is to invest your $40-50k lump sum all at once, rather than in stages.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by retiredflyboy » Mon Dec 03, 2018 11:14 pm

Personal preference for me is to hedge and put 1/2 in lump sum and DCA the rest over a 6 month period. Keep it simple and comfortable so you always sleep well and stay the course. Keeping emotion out of investing is an important principle. Simplicity and automatic often work well and complement each other. Lump sum is often the best way to go, but if you can’t sleep and you would be miserable if the market tanked right after you invested then it is not best for you.
Facts are stubborn things. Everything works until it doesn’t.

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CloudStrife1990
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by CloudStrife1990 » Sun Dec 09, 2018 9:36 am

Thanks for all the responses everyone!

I have pulled the trigger on a lump sum investment!

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by Mako52 » Fri Mar 13, 2020 11:14 am

As of today we have lost 2 and a half years of stock market gains March 2020 will make for an interesting addition to the lump sum vs DCA debate. And honestly the only time it really matters is if you come into a windfall scenario. You can't "lump sum" a 401k, IRA, or HSA contribution of significance due to IRS limits.

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by BoggledHead2 » Fri Mar 13, 2020 11:22 am

Do both

Lump sum X amount, DCA remaining funds weekly/monthly

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by whereskyle » Fri Mar 13, 2020 11:28 am

CloudStrife1990 wrote:
Mon Nov 26, 2018 4:03 am
Hey Guys!

Hope someone can offer some advice. I've got around 40-50k to invest in Vanguard index funds and I'm wondering if it is better to invest the whole amount all at once or do 5k monthly?

I know its difficult to predict and this enters the territory of market prediction etc. but just wondering on your thoughts...

I plan on doing it lump sum as I plan to invest this "forever". Does anyone have any conflicting views?
I put in 70% after the first big drop and then eased in 5% over the next six trading days. I can tell myself that I feel better than if I had put it all in on the first day, but I honestly think the stress of deciding whether or not to contribute on a given day is not worth it. We are already in bear market territory. If this investment is for the long haul, I think DCAing at this point is greedy, risky, and not worth the stress. You are in a great position. Buy the market now at a good price and be done with it. Trust me, you can tell yourself that DCAing makes sense, but unless you schedule automatic contributions and 100% will not touch it (which is of course not guaranteed and therefore not possible), then you are market timing and you expose yourself to the stress and potential pitfalls of that approach.
Last edited by whereskyle on Fri Mar 13, 2020 11:42 am, edited 4 times in total.
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by rasta » Fri Mar 13, 2020 11:33 am

First of all you should never just blindly throw money into the market, as we are now seeing FUNDAMENTALS do matter.

I don't know how many times I have to say this, but:

DCA is a hedging strategy to enter a position to reduce downside risk over the averaging period.

it's a simple concept, nothing wrong or irrational about using this strategy.

if you lump sum, then you are essentially picking a bottom.

so what's your strategy?

do you want to hedge or go all in for fear of missing out on what COULD be the bottom?

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by ruralavalon » Fri Mar 13, 2020 11:44 am

This is a thread from last November 4 months ago, and the OP has gone ahead and invested the money.
CloudStrife1990 wrote:
Mon Dec 03, 2018 6:21 am
Thank you all for your responses. Sorry for not replying earlier.

Gives me a bit of confidence going ahead and investing everything at once.

FYI, I'm 28 with no debt (no house either! Was saving up for a deposit but decided against it) - I think for the next few years I'm going to pump money into the index fund until the housing market calms down. I'm living in Australia btw.

Thanks for your input everyone!
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by whereskyle » Fri Mar 13, 2020 11:49 am

ruralavalon wrote:
Fri Mar 13, 2020 11:44 am
This is a thread from last November 4 months ago, and the OP has gone ahead and invested the money.
CloudStrife1990 wrote:
Mon Dec 03, 2018 6:21 am
Thank you all for your responses. Sorry for not replying earlier.

Gives me a bit of confidence going ahead and investing everything at once.

FYI, I'm 28 with no debt (no house either! Was saving up for a deposit but decided against it) - I think for the next few years I'm going to pump money into the index fund until the housing market calms down. I'm living in Australia btw.

Thanks for your input everyone!
:oops:
"I am better off than he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

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CloudStrife1990
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Re: Dollar Cost Averaging or Lump Sum in Current Market

Post by CloudStrife1990 » Wed Mar 25, 2020 5:12 pm

Haha actually its from Dec 2018!

But regardless, I still think lump sum is better vs DCA (DCA is better emotionally). For me anyway as I have 30 years or more left to work.

Stay safe and take care of yourselves everyone!

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