Front Loading vs Dollar Cost Averaging Calculator

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joo2lo
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Joined: Sat Nov 19, 2016 3:28 am

Front Loading vs Dollar Cost Averaging Calculator

Post by joo2lo » Fri Jan 11, 2019 3:23 am

I would like to do a comparison of projected investment returns between front loading my 401k contributions at the beginning of the year vs dollar cost averaging them throughout the year. Anyone know a good calculator/tool or website that can help with this?

Silk McCue
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Re: Front Loading vs Dollar Cost Averaging Calculator

Post by Silk McCue » Fri Jan 11, 2019 8:10 am

No calculator can answer this age old question because you have to guess what the market will do along the way. You can build your own simple spreadsheet or working it out using pencil and paper.

There are numerous posts that you can find using the search function. Just search "DCA" and you will find that the consensus is if you have funds available for investing in the market then investing today is the right day. Time in the market is historically superior assuming an appropriate time frame before needing the funds.

Cheers

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RickBoglehead
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Re: Front Loading vs Dollar Cost Averaging Calculator

Post by RickBoglehead » Fri Jan 11, 2019 8:11 am

This ^^^^

Asked frequently. Everyone wants the miracle of knowing the future. Not going to happen.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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JoMoney
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Re: Front Loading vs Dollar Cost Averaging Calculator

Post by JoMoney » Fri Jan 11, 2019 8:17 am

If you look at the past, "front loading" (getting the money in as soon as possible) was more frequently the superior strategy. Nobody knows what the future will look like, but if it will bother you too much if there is a dip soon after you invest, averaging in over time will alleviate the risk of that.
Having a balanced portfolio of stocks/bonds-cash and regular rebalancing will also give some of the effect of DCA'ing.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

dbr
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Re: Front Loading vs Dollar Cost Averaging Calculator

Post by dbr » Fri Jan 11, 2019 9:34 am

On average you just calculate the lost return at the average rate of return times the time for being out of the market.

Otherwise there is probably a Monte Carlo simulator out there that lets you choose the contribution schedule down to a monthly scale and would produce the respective distributions of end point result given assumed expected returns and expected variability of returns.

When that kind of thing has been done supposedly the answer is that the lump sum ends up with more money about 2/3 of the time and less money about 1/3 of the time. Keep in mind that sort of comparison would also be true for the fate of all the money you have in the market at a certain point in time. There is a somewhat higher chance that at the end of another year you will have more money and a lower chance you will have less money. I don't know what the numbers would be on that. The result is about the variability of returns and not about the strategies.

It is generally too simplistic to think of wealth building in terms of what return one will get without considering how wildly variable investment results are over time.

scout1
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Re: Front Loading vs Dollar Cost Averaging Calculator

Post by scout1 » Fri Jan 11, 2019 10:01 am

https://www.physicianonfire.com/front-l ... vestments/

It helps marginally according to this analysis which i think does a pretty good job.

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