Bloomberg article on lump sum vs dollar cost averaging

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Freefun
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Bloomberg article on lump sum vs dollar cost averaging

Post by Freefun » Wed Apr 18, 2018 5:33 pm

A good article on dollar cost averaging.

https://www.bloomberg.com/view/articles ... his-market

A fav quote:

"Investing is ultimately an exercise in regret minimization"

I used to try lump sum and market timing stuff until I realized I'm terrible at it. I'm curious if there are BH's here that prefer something other than dollar cost averaging.
Remember when you wanted what you currently have?

Thesaints
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Thesaints » Wed Apr 18, 2018 5:40 pm

Old debate: lump-sum fans say that most of the times they will achieve superior returns, which is absolutely correct. Cost-averaging folks say they will avoid the worst possible outcomes, which is also absolutely correct.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by MotoTrojan » Wed Apr 18, 2018 5:44 pm

I lump sum as soon as the cash is available, no matter the amount.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by TheAncientOne » Wed Apr 18, 2018 6:36 pm

Moto, I think that's fine if we're talking about something like your year end bonus. But what if you get a once in a lifetime injection of cash, as might be the case with an inheritance or the sale of a business. Would you lump sum that money as well?

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by remomnyc » Wed Apr 18, 2018 7:26 pm

I dollar cost averaged after the crash. Since then, I always lump sum whenever I have cash. If I were to receive a life-changing amount of money (unlikely, unless I win the lottery; again, unlikely, since I would have to buy a ticket), I would probably change my asset allocation toward more fixed income, but I would still lump sum the proceeds.

Edit: Actually, I just realized if I were to receive a life-altering amount of money, I would probably buy my dream home instead of investing it.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by daektr » Wed Apr 18, 2018 7:37 pm

I had read all the articles / backtesting and was very sure I would lump sum. But when the 7 figure $ actually showed up, I couldn't bring myself to do it. I don't think I'm adding much to this conversation, but FWIW.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by NotWhoYouThink » Wed Apr 18, 2018 7:39 pm

TheAncientOne wrote:
Wed Apr 18, 2018 6:36 pm
Moto, I think that's fine if we're talking about something like your year end bonus. But what if you get a once in a lifetime injection of cash, as might be the case with an inheritance or the sale of a business. Would you lump sum that money as well?
Yes

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by iceport » Wed Apr 18, 2018 7:50 pm

Freefun wrote:
Wed Apr 18, 2018 5:33 pm
A good article on dollar cost averaging.

https://www.bloomberg.com/view/articles ... his-market

A fav quote:

"Investing is ultimately an exercise in regret minimization"

I used to try lump sum and market timing stuff until I realized I'm terrible at it. I'm curious if there are BH's here that prefer something other than dollar cost averaging.
Thanks for an outstanding article. It really describes the issues in a balanced and accurate manner. And I completely agree with Ben Carlson's perspective.

The only thing I would add is that the size of the lump sum matters a great deal for me. It would be far easier for me to enter the market at a single lump sum purchase price with a lump sum of 5% of the portfolio value. If the lump sum is closer to 50% of the portfolio value, I would definitely want to spread out the market entry among many different purchase prices — regardless of valuations.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by peterinjapan » Wed Apr 18, 2018 8:14 pm

daektr wrote:
Wed Apr 18, 2018 7:37 pm
I had read all the articles / backtesting and was very sure I would lump sum. But when the 7 figure $ actually showed up, I couldn't bring myself to do it. I don't think I'm adding much to this conversation, but FWIW.
Yes, it's terrifying to do. I sold a house and had $500k to invest and it's been tearing me apart. I am going semi-slowly, buying things I have had my eye on...usually right before they drop. Sigh.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Dandy » Thu Apr 19, 2018 7:18 am

I understand that in general lump sum outperforms DCA perhaps 2/3'rds of the time. I do think there might be a reduction in that advantage for those start their DCA when the market is near or at it's all time high, or some other objective measure of high valuation.

I usually do and advise a combination of lump sum and DCA. Less lump sum is when the equity market is high (by some objective measure) and more if starting the process when the market has declined. Automate the DCA and double up on the monthly DCA when the equity fund(s) is down that month. Try to limit the DCA to about 12 months. I think it also matters whether you are in the early accumulation phase vs near or in retirement. The more investing time and more risk makes sense for the individual the more lump sum seems appropriate.

I think the above approach, at a minimum, will get most wary investors off the sidelines and into investing. They will have a plan, mostly automated, and a goal to invest more each month their equity fund(s) drop. In a year or less they will be fully invested. In most? cases they will not under perform a 100% lump sum by much.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by zwzhang » Thu Apr 19, 2018 9:44 am

Freefun wrote:
Wed Apr 18, 2018 5:33 pm
A good article on dollar cost averaging.

https://www.bloomberg.com/view/articles ... his-market

A fav quote:

"Investing is ultimately an exercise in regret minimization"

I used to try lump sum and market timing stuff until I realized I'm terrible at it. I'm curious if there are BH's here that prefer something other than dollar cost averaging.
Personally I just do a rebalance every one or two years, by using rebalance bands. I am near my retirement.
For younger investors, I think the Value Averaging is a better approach than DCA.
https://www.bogleheads.org/wiki/Value_averaging

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by ReformedSpender » Thu Apr 19, 2018 9:49 am

Dandy wrote:
Thu Apr 19, 2018 7:18 am
I understand that in general lump sum outperforms DCA perhaps 2/3'rds of the time. I do think there might be a reduction in that advantage for those start their DCA when the market is near or at it's all time high, or some other objective measure of high valuation.

I usually do and advise a combination of lump sum and DCA. Less lump sum is when the equity market is high (by some objective measure) and more if starting the process when the market has declined. Automate the DCA and double up on the monthly DCA when the equity fund(s) is down that month. Try to limit the DCA to about 12 months. I think it also matters whether you are in the early accumulation phase vs near or in retirement. The more investing time and more risk makes sense for the individual the more lump sum seems appropriate.

I think the above approach, at a minimum, will get most wary investors off the sidelines and into investing. They will have a plan, mostly automated, and a goal to invest more each month their equity fund(s) drop. In a year or less they will be fully invested. In most? cases they will not under perform a 100% lump sum by much.
Bingo! Agree with your sentiment

:beer
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by JustinR » Thu Apr 19, 2018 2:54 pm

So this terrible article is just saying "the market seems high right now so it'll probably go down. Therefore DCA is a good idea." Correct?

Dandy wrote:
Thu Apr 19, 2018 7:18 am
I understand that in general lump sum outperforms DCA perhaps 2/3'rds of the time. I do think there might be a reduction in that advantage for those start their DCA when the market is near or at it's all time high, or some other objective measure of high valuation.

I usually do and advise a combination of lump sum and DCA. Less lump sum is when the equity market is high (by some objective measure) and more if starting the process when the market has declined. Automate the DCA and double up on the monthly DCA when the equity fund(s) is down that month. Try to limit the DCA to about 12 months. I think it also matters whether you are in the early accumulation phase vs near or in retirement. The more investing time and more risk makes sense for the individual the more lump sum seems appropriate.

I think the above approach, at a minimum, will get most wary investors off the sidelines and into investing. They will have a plan, mostly automated, and a goal to invest more each month their equity fund(s) drop. In a year or less they will be fully invested. In most? cases they will not under perform a 100% lump sum by much.
Also known as market timing.

I swear, if there was anything else in investing that gave an investor the advantage 2/3 of the time, every investor would worship it like a god. Only something as terrible as DCA refuses to go away because it makes people feel good.
Last edited by JustinR on Thu Apr 19, 2018 3:48 pm, edited 2 times in total.

Thesaints
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Thesaints » Thu Apr 19, 2018 2:57 pm

Actually, DCA (the real one) says "I don't know whether the market is presently high, or low, but I want to avoid the risk of it being extremely high"

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Jags4186 » Thu Apr 19, 2018 3:15 pm

DCAing over a time period of 12 months or so never made any sense to me. Proponents say it's to protect them from a crash right after investing. But if you're playing the odds that there will be a crash tomorrow, there's an equal chance that there will be a crash 1 year from now. What's stopping you from DCAing steadily into a market and then 12 months later watching the cliff fall off?

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Thesaints » Thu Apr 19, 2018 3:21 pm

Jags4186 wrote:
Thu Apr 19, 2018 3:15 pm
DCAing over a time period of 12 months or so never made any sense to me. Proponents say it's to protect them from a crash right after investing. But if you're playing the odds that there will be a crash tomorrow, there's an equal chance that there will be a crash 1 year from now. What's stopping you from DCAing steadily into a market and then 12 months later watching the cliff fall off?
If you randomly select one day in a year and invest that day, there is a 1/250 chance that you picked the worst possible day that year. There also is a 1/25 chance you picked one of the worst 10 days of the year.
If you cost average making, let's say, 12 purchases, at worst you make that mistake with 1/12th of your capital.

It is true that, given the expectation of positive returns from financial markets, investing everything earlier gives you a slightly higher expected return than investing gradually, but insurance is never free.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Earl Lemongrab » Thu Apr 19, 2018 4:08 pm

TheAncientOne wrote:
Wed Apr 18, 2018 6:36 pm
Moto, I think that's fine if we're talking about something like your year end bonus. But what if you get a once in a lifetime injection of cash, as might be the case with an inheritance or the sale of a business. Would you lump sum that money as well?
Well, I would, but after reassessing my asset allocation. You should find an AA that fits with your new asset level. Remember, there's no difference between not investing cash and selling what you already have. I have just into seven figures in the stock market. So should I sell all that and DCA in? If not, why not? Or if the desire would be not to pay taxes, then I have ~400k in stocks in tax-advantaged. Again, a pretty good lump.

But people don't want to make that association. They want to treat what's in cash as different than what could be made into cash easily.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Earl Lemongrab
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Earl Lemongrab » Thu Apr 19, 2018 4:11 pm

Thesaints wrote:
Thu Apr 19, 2018 3:21 pm
If you randomly select one day in a year and invest that day, there is a 1/250 chance that you picked the worst possible day that year. There also is a 1/25 chance you picked one of the worst 10 days of the year.
If you cost average making, let's say, 12 purchases, at worst you make that mistake with 1/12th of your capital.
But what do you do when it's all in? You are guaranteed to have it in the market for the next year's worst day! Better sell it all and DCA all over. Whew! Disaster averted.
It is true that, given the expectation of positive returns from financial markets, investing everything earlier gives you a slightly higher expected return than investing gradually, but insurance is never free.
Well, the "insurance" isn't buying you very much. If you're really worried, you change your stock/bond allocation.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Toons » Thu Apr 19, 2018 4:13 pm

All In ASAP.
Check every 10 years. :happy
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Dandy » Thu Apr 19, 2018 4:54 pm

Also known as market timing.


Market timing is a term that is thrown around on so many things that it can lose its real value. Some have applied it to rebalancing. I have dealt with the most abusive market timers who had list of clients and they would call in often several times a week just before the market close to move 100% of their customers out of one fund to money market only to reverse the process a few days later. If partial lump with a DCA 12 months or less is market timing- then it is a market timing parking ticket vs running a red light. :happy

People are afraid to take risk off the table because of the fear of being shamed. That shouldn't be. Agreed no one can predict the future of the market. After an 8? year bull market maybe those who are somewhat risk wary or those in retirement might want to give up some potential gain for a potentially less risk. Also, a major benefit is getting those who are risk averse to not sit on the sidelines.

Have you seen a study of shorter term DCA vs lump when the market is at its high? I have not. But, stands to reason that the higher the market valuation the more likely the DCA is better than the 2/3 loser average.

Mr. Bogle while espousing and is noted for "stay the course" mantra also says during an extreme market valuation you should consider dropping your equity allocation significantly say from 65/35 to 50/50. He reduced his equities around the year 2000 from 75%+ to 25% (failing health had something to do with the severity of the drop). I believe he said the equity market was at 40 times earnings (I guess that is his objective valuation measure). So, he market timed. :oops: He also didn't trash DCA in all cases. Suggested a person who inherited a million $$ might DCA each quarter over 4-5 years. Obviously, Jack has set the tone for how to invest for most of us but he is often less dogmatic than some of his most ardent followers.
See Youtube videos below.

Jack Bogle on Asset Allocation and Market Collapse (2014)
Jack Bogle on Dollar Cost Averaging (2014)

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Fallible » Thu Apr 19, 2018 8:22 pm

Dandy wrote:
Thu Apr 19, 2018 4:54 pm
...
Mr. Bogle while espousing and is noted for "stay the course" mantra also says during an extreme market valuation you should consider dropping your equity allocation significantly say from 65/35 to 50/50. He reduced his equities around the year 2000 from 75%+ to 25% (failing health had something to do with the severity of the drop). I believe he said the equity market was at 40 times earnings (I guess that is his objective valuation measure). So, he market timed. :oops: ...
See Youtube videos below.

Jack Bogle on Asset Allocation and Market Collapse (2014)
Jack Bogle on Dollar Cost Averaging (2014)
Correct me if I’m wrong, but in the video, I hear Jack saying this: "I believe strongly that [investors] should be realizing valuations are fairly full, and if they are nervous they could easily sell off a portion of their stocks.," said Bogle, adding that investors should not sell much.

Here he is talking not about market timing, which is trying to predict the market, but about the need for "nervous" investors to stay within their risk tolerance levels by reducing equities.
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by randomizer » Thu Apr 19, 2018 8:29 pm

My view: lump trumps.
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Dandy » Thu Apr 19, 2018 9:55 pm

Here he is talking not about market timing, which is trying to predict the market, but about the need for "nervous" investors to stay within their risk tolerance levels by reducing equities.
I'm ok with nervous investors dialing back their equities to stay within their risk tolerance -- that is also what reblancing does yet some call that market timing. I tend to agree that (dialing back) is a form of market timing, if it is based on feelings vs some objective measure of extreme valuation.

Bogle feels dialing back is preferred for nervous investors who can panic and sell off all their equities. But he seemed to make a general recommendation that in extreme equity valuations investors dial back equities say from 65% to 50%. That wasn't confined to nervous investors and that Bogle advice is often negatively labeled market timing.

I think the point is, is the action based on feeling, fear, panic or media hype - but some reasonably objective measure. A 15% dial back in equity allocations is a pretty big deal. To me it is similar to the objective measure that says I will rebalance when my equity allocation exceeds my target by 5%. That isn't based on feelings, panic etc. neither is basing a reduction in equity allocation based on equities being 40 times earnings. If it is market timing-- it is Bogle approved and recommended.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by JustinR » Thu Apr 19, 2018 10:20 pm

Dandy wrote:
Thu Apr 19, 2018 9:55 pm
Here he is talking not about market timing, which is trying to predict the market, but about the need for "nervous" investors to stay within their risk tolerance levels by reducing equities.
I'm ok with nervous investors dialing back their equities to stay within their risk tolerance -- that is also what reblancing does yet some call that market timing. I tend to agree that (dialing back) is a form of market timing, if it is based on feelings vs some objective measure of extreme valuation.

Bogle feels dialing back is preferred for nervous investors who can panic and sell off all their equities. But he seemed to make a general recommendation that in extreme equity valuations investors dial back equities say from 65% to 50%. That wasn't confined to nervous investors and that Bogle advice is often negatively labeled market timing.

I think the point is, is the action based on feeling, fear, panic or media hype - but some reasonably objective measure. A 15% dial back in equity allocations is a pretty big deal. To me it is similar to the objective measure that says I will rebalance when my equity allocation exceeds my target by 5%. That isn't based on feelings, panic etc. neither is basing a reduction in equity allocation based on equities being 40 times earnings. If it is market timing-- it is Bogle approved and recommended.
Rebalancing is a reaction to your asset allocation being out of whack, and correcting it. It has nothing to do with how you think the market is going to do in the future. That's not market timing.

Changing your investment strategy (switching from lump sum to DCA) because you think that the market is more likely to go down this week than last week, is market timing. Just because you planned this strategy in advance or are holding it to some arbitrary "objective measure" doesn't make it not market timing.
Last edited by JustinR on Thu Apr 19, 2018 10:27 pm, edited 1 time in total.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Thesaints » Thu Apr 19, 2018 10:22 pm

Earl Lemongrab wrote:
Thu Apr 19, 2018 4:11 pm
But what do you do when it's all in?
From that point onward I'm exposed to the same risk as the lump sum investor. Seems like you guys don't consider risk as a cumulative variable.
You and I can be playing russian roulette. I remove the bullet the first two rounds we play and then play another 8 with the bullet in the cylinder.
You play all 10 rounds with the bullet in the cylinder.
It is very true that from the third round onward you and I are exposed to an identical risk, but it is also very true that my total risk is lower than yours and it is total risk the one that counts.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Earl Lemongrab » Thu Apr 19, 2018 11:29 pm

Thesaints wrote:
Thu Apr 19, 2018 10:22 pm
Earl Lemongrab wrote:
Thu Apr 19, 2018 4:11 pm
But what do you do when it's all in?
From that point onward I'm exposed to the same risk as the lump sum investor. Seems like you guys don't consider risk as a cumulative variable.
You and I can be playing russian roulette. I remove the bullet the first two rounds we play and then play another 8 with the bullet in the cylinder.
You play all 10 rounds with the bullet in the cylinder.
It is very true that from the third round onward you and I are exposed to an identical risk, but it is also very true that my total risk is lower than yours and it is total risk the one that counts.
Really poor analogy. It's not a set of bad incidents and you remove one. It's a bag full of good and bad incidents, with MORE good than bad. By passing on pulling something out of the bag, you miss good things more often than bad.
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Thesaints » Fri Apr 20, 2018 12:51 am

Earl Lemongrab wrote:
Thu Apr 19, 2018 11:29 pm
Really poor analogy. It's not a set of bad incidents and you remove one. It's a bag full of good and bad incidents, with MORE good than bad. By passing on pulling something out of the bag, you miss good things more often than bad.
You certainly miss the worst. That's the entire point. Cost averaging does not raise your expected return (it lowers it!), but it removes the chances of extreme results, both good and bad. Sometimes, avoiding tails does matter. Those who cost average will never ever do as bad as some lump sum investors may do.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Dandy » Fri Apr 20, 2018 4:52 am

Rebalancing is a reaction to your asset allocation being out of whack, and correcting it. It has nothing to do with how you think the market is going to do in the future. That's not market timing.
I don't think it is wrong but 1. some people call it market timing. 2. You are in essence saying the market is too high and I'm worried that it will decline. The difference from "bad" portfolio adjustments is that you have pre programmed the action and are not reacting to media hype etc.
Changing your investment strategy (switching from lump sum to DCA) because you think that the market is more likely to go down this week than last week, is market timing.
I tend to agree that it is not good and that you are trying to time the market based on feelings about the market.

Code: Select all

Just because you planned this strategy in advance or are holding it to some arbitrary "objective measure" doesn't make it not market timing.
What you call it is up for grabs. Mr. Bogle thinks investors should do it when the market is extremely overvalued. He cited 40 times earnings has his objective measure. You will have to discuss with him whether he thinks that is "arbitrary".

Just for the record. I'm just pointing out that forum members often toss the term market timing when people react to a market with high valuations by wanting to reduce their equity exposure or want to DCA instead of lump sum. Yet Mr. Bogle does, on occasion, recommend what his followers call market timing. He preaches stay the course but also says there are rare times when a course adjustment or DCA is ok. I tend to agree with him but this isn't the Dandyhead forum it is the Boglehead forum. If you don't like it you need to address it to him. I don't agree with everything Mr. Bogle says e.g. I peek often. :happy

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by IlliniDave » Fri Apr 20, 2018 6:18 am

Most of us are sort of in the middle. As soon as I get paid I make a lump sum deposit into investment accounts of every nickel I think I can afford to invest at that time. But that happens 26 times a year.

If I were to wait until I had accumulated a year's worth of wage-derived capital earmarked for investing, then invested in a lump sum, I'd most likely lag my incremental approach. I've yet to have the opportunity to decide what to do with a large sum of cash that I would like to invest.
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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by bradpevans » Fri Apr 20, 2018 7:05 am

Freefun wrote:
Wed Apr 18, 2018 5:33 pm
A good article on dollar cost averaging.

https://www.bloomberg.com/view/articles ... his-market

A fav quote:

"Investing is ultimately an exercise in regret minimization"

I used to try lump sum and market timing stuff until I realized I'm terrible at it. I'm curious if there are BH's here that prefer something other than dollar cost averaging.
The source article is this: https://personal.vanguard.com/pdf/ISGDCA.pdf
and includes this (emphasis added) In Figure 3, we show that a 60/40 stock/bond portfolio becomes, temporarily, a 30/20/50 stock/bond/cash portfolio if the lump sum isn’t invested immediately. As discussed earlier, this cash drag that occurs over time is the primary reason that systematic implementation strategies have underperformed on average

Letting all that cash sit is what you are paying for.

When i think of DCA, i think more of recurring contributions to the same equity, where you buy on that day regardless of price. Sometimes its up, sometimes its down. If down, then more shares get bought. If its up, then last months shares are more valuable.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Earl Lemongrab » Fri Apr 20, 2018 10:18 am

Thesaints wrote:
Fri Apr 20, 2018 12:51 am
Earl Lemongrab wrote:
Thu Apr 19, 2018 11:29 pm
Really poor analogy. It's not a set of bad incidents and you remove one. It's a bag full of good and bad incidents, with MORE good than bad. By passing on pulling something out of the bag, you miss good things more often than bad.
You certainly miss the worst. That's the entire point. Cost averaging does not raise your expected return (it lowers it!), but it removes the chances of extreme results, both good and bad. Sometimes, avoiding tails does matter. Those who cost average will never ever do as bad as some lump sum investors may do.
And you miss the best days. Which there are more of. Also, the worst days might be better than today.

If this is the goal, you should do it all the time. Your asset allocation needs a rework, not something artificial like DCA.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Fallible » Fri Apr 20, 2018 12:04 pm

JustinR wrote:
Thu Apr 19, 2018 10:20 pm
Dandy wrote:
Thu Apr 19, 2018 9:55 pm
Here he is talking not about market timing, which is trying to predict the market, but about the need for "nervous" investors to stay within their risk tolerance levels by reducing equities.
I'm ok with nervous investors dialing back their equities to stay within their risk tolerance -- that is also what reblancing does yet some call that market timing. I tend to agree that (dialing back) is a form of market timing, if it is based on feelings vs some objective measure of extreme valuation.

Bogle feels dialing back is preferred for nervous investors who can panic and sell off all their equities. But he seemed to make a general recommendation that in extreme equity valuations investors dial back equities say from 65% to 50%. That wasn't confined to nervous investors and that Bogle advice is often negatively labeled market timing.

I think the point is, is the action based on feeling, fear, panic or media hype - but some reasonably objective measure. A 15% dial back in equity allocations is a pretty big deal. To me it is similar to the objective measure that says I will rebalance when my equity allocation exceeds my target by 5%. That isn't based on feelings, panic etc. neither is basing a reduction in equity allocation based on equities being 40 times earnings. If it is market timing-- it is Bogle approved and recommended.
Rebalancing is a reaction to your asset allocation being out of whack, and correcting it. It has nothing to do with how you think the market is going to do in the future. That's not market timing.

Changing your investment strategy (switching from lump sum to DCA) because you think that the market is more likely to go down this week than last week, is market timing. Just because you planned this strategy in advance or are holding it to some arbitrary "objective measure" doesn't make it not market timing.
JustinR, I agree on the rebalancing: it is not about market timing, it is about bringing an AA back to its preset allocation. Market timing is generally about formally predicting the market's future and then investing based on that. Here are good definitions from the wiki and from Investopedia:

https://www.bogleheads.org/wiki/Market_timing

Also, investors becoming nervous about market valuations and worrying about what it might do to the point of failing the sleep test or bailing out is about personal risk tolerance, not market timing. And the latter is what Jack Bogle is referring to in his statement (worth repeating):
I believe strongly that [investors] should be realizing valuations are fairly full, and if they are nervous they could easily sell off a portion of their stocks.," said Bogle, adding that investors should not sell much.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by Independent George » Fri Apr 20, 2018 12:27 pm

I lump-summed my Roth IRA contribution on January 2nd, took a fair bit of a paper loss as a result, and have no regrets. Why? Because now instead spending $453 every month to DCA my contribution, I have a surplus even when I have a balloon expense in a given month. Psychologically, I feel much better sinking a lot of money into my account in January and having to think about it for another eleven months.

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Re: Bloomberg article on lump sum vs dollar cost averaging

Post by JustinR » Fri Apr 20, 2018 12:35 pm

IlliniDave wrote:
Fri Apr 20, 2018 6:18 am
Most of us are sort of in the middle. As soon as I get paid I make a lump sum deposit into investment accounts of every nickel I think I can afford to invest at that time. But that happens 26 times a year.

If I were to wait until I had accumulated a year's worth of wage-derived capital earmarked for investing, then invested in a lump sum, I'd most likely lag my incremental approach. I've yet to have the opportunity to decide what to do with a large sum of cash that I would like to invest.
That's just lump sum.

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Lump Sum Vs Dollar Cost Averaging

Post by ReformedSpender » Tue Apr 24, 2018 7:37 am

[merged this post and its replies into the existing thread - moderator prudent]

Interesting article regarding lump sum vs DCA relative to today's market valuations

https://www.bloomberg.com/view/articles ... his-market

Research from Vanguard shows that, most of the time, investors would do best by investing a lump sum. The simple explanation is that markets tend to go up roughly three out of every four years. Vanguard looked at a 60/40 stock/bond portfolio in the U.S., U.K. and Australia. It compared the performance of an immediate lump-sum investment over a year against 12 monthly purchases spaced out over the course of a year. The lump sum beat dollar cost averaging about two-thirds of the time. On average, the lump sum beat the dollar cost-averaging strategy by an average of 1.5 percent to 2.4 percent, depending on the country. The results were even more pronounced for longer time horizons.

But this analysis ignores the market’s current valuation. The S&P 500 stands at the upper end of long-term valuation levels in terms of the cyclically adjusted price-to-earnings ratio. The CAPE ratio stands at roughly 32 times the previous 10 years’ average real earnings, a level only reached before the 1929 crash and in the late 1990s when the dot-com bubble popped.

Dollar cost averaging should work better under such scenarios, considering the market experienced enormous crashes in both cases. The win rate falls slightly for the lump sum in these instances, but it still beats the periodic investment approach overall. I compared a lump sum $100,000 investment to 12 equal monthly investments in the S&P 500 over rolling 12-month periods going back to 1926 when the CAPE ratio was at 32 or higher. The lump sum still came out ahead 60 percent of the time, but the end values varied much more widely than under the dollar cost-averaging strategy.

:beer
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Re: Lump Sum Vs Dollar Cost Averaging

Post by Earl Lemongrab » Tue Apr 24, 2018 12:27 pm

Good old-fashioned market timing. If that would be good, then selling everything and doing DCA would be even better. Or sell everything and stay in cash until valuations "improve".
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Pajamas » Tue Apr 24, 2018 12:34 pm

Fairly well-balanced article that relies on research, so much better than average.

My take from it is that lump sum is better unless you have a short horizon.

In that case, you shouldn't be investing in anything risky, anyway, but saving instead.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by wolf359 » Tue Apr 24, 2018 12:52 pm

Lump Sum works out mathematically better. But investing is done by people, and people can have regrets. If dollar cost averaging will get someone to invest in an uncertain market rather than sitting on the sidelines, or investing then pulling the money when it starts shrinking, then DCA is the more effective choice for someone new to the market.

Investor behavior plays a bigger role on investment returns than the underlying investment.

Personally, I'd put the money in all at once and rebalance. I'm already exposed to the market, and am comfortable with my asset allocation.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Earl Lemongrab » Tue Apr 24, 2018 1:14 pm

wolf359 wrote:
Tue Apr 24, 2018 12:52 pm
Lump Sum works out mathematically better. But investing is done by people, and people can have regrets. If dollar cost averaging will get someone to invest in an uncertain market rather than sitting on the sidelines, or investing then pulling the money when it starts shrinking, then DCA is the more effective choice for someone new to the market.
You're assuming that this will be effective. More likely, if things start going down the DCA perso will freeze and stop with contributions until things "stablize". That's because they haven't gotten into the correct mindset for investing. I don't think DCA really helps there.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Thesaints » Tue Apr 24, 2018 1:22 pm

Lump Sum does not "work better", it does have a "better expected result". Which incidentally means that some time it may work worse and some investors may have an interest in avoiding the worst possible outcomes.

Look at it this way:
You can participate to a gamble where you can lose $1, or win $5 with equal chances. Or you can choose to cash $1.
Clearly the gamble has a higher expected return and the more you play, the more the chance of losing money overall becomes smaller.
Yet, someone may be interested in avoiding the chance of losing money entirely.
Multiply amounts by 100,000 and you'll immediately see why.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by wolf359 » Tue Apr 24, 2018 1:23 pm

Earl Lemongrab wrote:
Tue Apr 24, 2018 1:14 pm
wolf359 wrote:
Tue Apr 24, 2018 12:52 pm
Lump Sum works out mathematically better. But investing is done by people, and people can have regrets. If dollar cost averaging will get someone to invest in an uncertain market rather than sitting on the sidelines, or investing then pulling the money when it starts shrinking, then DCA is the more effective choice for someone new to the market.
You're assuming that this will be effective. More likely, if things start going down the DCA perso will freeze and stop with contributions until things "stablize". That's because they haven't gotten into the correct mindset for investing. I don't think DCA really helps there.
The logic of DCA is that the more the market drops, the "better" the price. There's less regret, because less was purchased at (what is now) a loss. DCA is easier to do in a declining market. DCA would have been really hard to do last year, in a market that only went up.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by wolf359 » Tue Apr 24, 2018 1:25 pm

Thesaints wrote:
Tue Apr 24, 2018 1:22 pm
Lump Sum does not "work better", it does have a "better expected result". Which incidentally means that some time it may work worse and some investors may have an interest in avoiding the worst possible outcomes.

Look at it this way:
You can participate to a gamble where you can lose $1, or win $5 with equal chances. Or you can choose to cash $1.
Clearly the gamble has a higher expected return and the more you play, the more the chance of losing money overall becomes smaller.
Yet, someone may be interested in avoiding the chance of losing money entirely.
Multiply amounts by 100,000 and you'll immediately see why.
I don't disagree. You are saying it more accurately and articulately than I am.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by 220volt » Tue Apr 24, 2018 1:37 pm

Where does one get this "lump sum" - Lottery?
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Thesaints » Tue Apr 24, 2018 1:39 pm

220volt wrote:
Tue Apr 24, 2018 1:37 pm
Where does one get this "lump sum" - Lottery?
There is no lottery in stocks investing; you should invest everything as soon as possible, if you believe that markets always go up.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Pajamas » Tue Apr 24, 2018 1:41 pm

220volt wrote:
Tue Apr 24, 2018 1:37 pm
Where does one get this "lump sum" - Lottery?
Sale of house or other physical asset
Sale of a stock or non-physical assets
Gift
Bonus from employer
Inheritance
Life insurance
Legal settlement
Lottery, racetrack, casino
Find stash of gold coins or other valuable items
&c.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Earl Lemongrab » Tue Apr 24, 2018 1:46 pm

wolf359 wrote:
Tue Apr 24, 2018 1:23 pm
The logic of DCA is that the more the market drops, the "better" the price. There's less regret, because less was purchased at (what is now) a loss. DCA is easier to do in a declining market. DCA would have been really hard to do last year, in a market that only went up.
There is no logic it to it. It's a crutch for people nervous about the market. Which is why I don't think they will stick with it just because prices are lower.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Earl Lemongrab » Tue Apr 24, 2018 1:49 pm

Thesaints wrote:
Tue Apr 24, 2018 1:22 pm
Lump Sum does not "work better", it does have a "better expected result". Which incidentally means that some time it may work worse and some investors may have an interest in avoiding the worst possible outcomes.

Look at it this way:
You can participate to a gamble where you can lose $1, or win $5 with equal chances. Or you can choose to cash $1.
Clearly the gamble has a higher expected return and the more you play, the more the chance of losing money overall becomes smaller.
Yet, someone may be interested in avoiding the chance of losing money entirely.
Multiply amounts by 100,000 and you'll immediately see why.
This is the usual from you. You act as though it were possible to avoid the bad and keep the good. In your scenario you'd be all cash all the time. That's the ONLY way to avoid a downturn or other bad outcome. DCA does not do that. The market could go up every month while you DCA and crash the day after you get done.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by 220volt » Tue Apr 24, 2018 1:51 pm

Thesaints wrote:
Tue Apr 24, 2018 1:39 pm
220volt wrote:
Tue Apr 24, 2018 1:37 pm
Where does one get this "lump sum" - Lottery?
There is no lottery in stocks investing; you should invest everything as soon as possible, if you believe that markets always go up.
I know. That was my point. Most of the people who are still working are investing as soon as they can via 401k, regular contributions etc...Which is not true DCA since there is no lump sum do begin with. No choice really. Having a lump sum seems to be rare (lottery, house sale, inheritance) that any study is unlikly to produce any meaningful answers for an average folk.
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Thesaints » Tue Apr 24, 2018 1:53 pm

Earl Lemongrab wrote:
Tue Apr 24, 2018 1:49 pm
This is the usual from you. You act as though it were possible to avoid the bad and keep the good.
Not at all: I'm saying that you can avoid the worst by giving up a little good. Since it is my usual, it should be clear by now.

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Re: Lump Sum Vs Dollar Cost Averaging

Post by Thesaints » Tue Apr 24, 2018 1:53 pm

220volt wrote:
Tue Apr 24, 2018 1:51 pm
Thesaints wrote:
Tue Apr 24, 2018 1:39 pm
220volt wrote:
Tue Apr 24, 2018 1:37 pm
Where does one get this "lump sum" - Lottery?
There is no lottery in stocks investing; you should invest everything as soon as possible, if you believe that markets always go up.
I know. That was my point. Most of the people who are still working are investing as soon as they can via 401k, regular contributions etc...Which is not true DCA since there is no lump sum do begin with. No choice really. Having a lump sum seems to be rare (lottery, house sale, inheritance) that any study is unlikly to produce any meaningful answers for an average folk.
I did not understand. You are 100% right, of course.

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