Which schedule is better when making periodic investments into an ETF

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Carol88888
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Which schedule is better when making periodic investments into an ETF

Post by Carol88888 » Sun Jun 16, 2019 6:54 pm

I have read the posts regarding dollar cost averaging and lump sum and I have been somewhat persuaded that lump is better since the market goes up 66% of time.

So recently I made a lump sum investment into S&P 500 and intend to make many more investments into it. My available cash comes to me 4 times a year. I could just dump this money in as soon as I get it, or I could divide the sum into 4 equal parts making a purchase every month.

Since there is no commission would making more frequent investments be the smoother ride? But then that sort of contradicts the idea that lump sum works better.

Which way would rationally be better?

Silk McCue
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Re: Which schedule is better when making periodic investments into an ETF

Post by Silk McCue » Sun Jun 16, 2019 7:31 pm

Since you have read a number of posts on this subject where all perspectives have already been provided, what exactly are you asking? If you received money monthly would you consider breaking it into 4 weekly investments? I wouldn’t and neither would I take quarterly income and spread it out over 3 months.

Don’t spend the rest of your investing career trying to outsmart the market and constantly pick the right day to make a trade. None of us are smarter than the market nor can we divine what it will do.

Just do it.

Wishing you the best.

Cheers

UpperNwGuy
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Re: Which schedule is better when making periodic investments into an ETF

Post by UpperNwGuy » Sun Jun 16, 2019 7:41 pm

Carol88888 wrote:
Sun Jun 16, 2019 6:54 pm
I have read the posts regarding dollar cost averaging and lump sum and I have been somewhat persuaded that lump is better since the market goes up 66% of time.
There's the answer!

TropikThunder
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Re: Which schedule is better when making periodic investments into an ETF

Post by TropikThunder » Sun Jun 16, 2019 9:12 pm

Silk McCue wrote:
Sun Jun 16, 2019 7:31 pm
Since you have read a number of posts on this subject where all perspectives have already been provided, what exactly are you asking? If you received money monthly would you consider breaking it into 4 weekly investments? I wouldn’t and neither would I take quarterly income and spread it out over 3 months.

Don’t spend the rest of your investing career trying to outsmart the market and constantly pick the right day to make a trade. None of us are smarter than the market nor can we divine what it will do.

Just do it.

Wishing you the best.

Cheers
+1. It's already DCA to some extent by virtue of being received quarterly. Most people who regularly contribute do so based on paycheck frequency (like bi-weekly) so they can't accelerate it any faster because they don't have the money yet. You don't have that limitation.

123
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Re: Which schedule is better when making periodic investments into an ETF

Post by 123 » Sun Jun 16, 2019 9:27 pm

If you are investing in a taxable account each investment will likely have a different cost basis. The more purchase lots you have the more potential complications you have when you sell since there can be substantial tax savings by selling specifically id'd lots. If you use an average cost basis this isn't so much an issue. A lot depends on how much appreciation you have in the investment before you sell.
The closest helping hand is at the end of your own arm.

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Carol88888
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Re: Which schedule is better when making periodic investments into an ETF

Post by Carol88888 » Mon Jun 17, 2019 12:40 am

Thank you. I hadn't even thought about the tax confusion of having more lots.

I guess I was thinking that if I divided the money so that I could buy each month I would avoid regret since if the first buy seemed "high" well, at least I had 3 more times to buy in and might get a "low."

Maybe I am just attracted to making smaller purchases because it gives me more to do. But I know that's not a real good reason.

Doesn't buying 12 times a year as opposed to 4 times a year lower the standard deviation?

livesoft
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Re: Which schedule is better when making periodic investments into an ETF

Post by livesoft » Mon Jun 17, 2019 12:58 am

I'd want a huge standard deviation myself with the cause being huge stock market gains. ;)
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Topic Author
Carol88888
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Re: Which schedule is better when making periodic investments into an ETF

Post by Carol88888 » Mon Jun 17, 2019 1:13 am

I found this chart from Michael Edesess, mathematician:

Lump Sum Investing vs. Dollar Cost Averaging
1 year Average Return Standard Deviation
Lump 12.3 21.7
Dollar cost 8.2 12.5


3 years
Lump 10.8 11.9
Dollar cost 7.5 6.9


5 Years
Lump 10.3 8.7
Dollar cost 7.2 5.1


So the trade off in making more frequent purchases is a sacrifice of return in exchange for less variability. Having lump summed the equivalent of 2 years of my normal periodic purchases, I am still inclined to make 12 buys.

So I guess I am not rational after all.

Lee_WSP
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Re: Which schedule is better when making periodic investments into an ETF

Post by Lee_WSP » Mon Jun 17, 2019 5:02 pm

As soon as the money is in your hands is the best answer given the expected outcomes. But expected outcomes doesn't mean it's the best psychological course.

If you can stomach the possibility that 1/3 of the time, your lump sum will go down, then do it. If you can't, and if spreading it out over 3 months makes it easier, then do that.

If you still can't stomach the 1/3 possibility of the position losing value, reconsider your asset allocation.

adrihead
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Re: Which schedule is better when making periodic investments into an ETF

Post by adrihead » Mon Jun 17, 2019 5:55 pm

I have always thought that if you wait until we hit recession and the market goes down to make your lump sum investment... That's better than doing the lump sum investment now.

The market is going to crash sooner or later. Of course, during a recession there will always be the question of how much the market is going to go down and when is the minimum value the market will reach. But investing during the next recession is going to be cheaper than investing right now (after 10 years of market going up).

Why not letting your money sleep in a savings account at 1-2% interest and then invest it in an index fund when we hit the next recession?

P. S. The fact being that I actually don't follow that and I make monthly investments to my funds as soon as I receive the money in my payroll lol
Last edited by adrihead on Mon Jun 17, 2019 6:01 pm, edited 1 time in total.

MotoTrojan
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Re: Which schedule is better when making periodic investments into an ETF

Post by MotoTrojan » Mon Jun 17, 2019 6:01 pm

I always invest as much as I can as soon as I can. Makes things easy and is grounded in logic rather than emotion. I’d invest when you receive each of these quarterly lumps.

Would you take a 401k accumulated over 30 years and move it to cash then reinvest monthly? Of course not. New money isn’t any different.
Last edited by MotoTrojan on Mon Jun 17, 2019 6:04 pm, edited 1 time in total.

MotoTrojan
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Re: Which schedule is better when making periodic investments into an ETF

Post by MotoTrojan » Mon Jun 17, 2019 6:02 pm

adrihead wrote:
Mon Jun 17, 2019 5:55 pm
I have always thought that if you wait until we hit recession and the market goes down to make your lump sum investment... That's better than doing the lump sum investment now.

The market is going to crash sooner or later. Of course, during a recession there will always be the question of how much the market is going to go down and when is the minimum value the market will reach. But investing during the next recession is going to be cheaper than investing right now (after 10 years of market going up).

Why not letting your money sleep in a savings account at 1-2% interest and then invest it in an index fund when we hit the next recession?

P. S. The fact being that I actually don't follow that and I make monthly investments to my funds as soon as I receive the money in my payroll lol
How do you know the next recession/bear will see market prices below today’s? If that was a certainty then institutional investors would’ve already driven the price down to make up for that known fact.

Silk McCue
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Re: Which schedule is better when making periodic investments into an ETF

Post by Silk McCue » Mon Jun 17, 2019 6:07 pm

adrihead wrote:
Mon Jun 17, 2019 5:55 pm
I have always thought that if you wait until we hit recession and the market goes down to make your lump sum investment... That's better than doing the lump sum investment now.

The market is going to crash sooner or later. Of course, during a recession there will always be the question of how much the market is going to go down and when is the minimum value the market will reach. But investing during the next recession is going to be cheaper than investing right now (after 10 years of market going up).

Why not letting your money sleep in a savings account at 1-2% interest and then invest it in an index fund when we hit the next recession?

P. S. The fact being that I actually don't follow that and I make monthly investments to my funds as soon as I receive the money in my payroll lol
This advice is completely inconsistent with the Boglehead philosophy. Market timing is a fools errand.

Cheers

Topic Author
Carol88888
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Re: Which schedule is better when making periodic investments into an ETF

Post by Carol88888 » Mon Jun 17, 2019 6:10 pm

adrihead wrote:
Mon Jun 17, 2019 5:55 pm
I have always thought that if you wait until we hit recession and the market goes down to make your lump sum investment... That's better than doing the lump sum investment now.

The market is going to crash sooner or later. Of course, during a recession there will always be the question of how much the market is going to go down and when is the minimum value the market will reach. But investing during the next recession is going to be cheaper than investing right now (after 10 years of market going up).

Why not letting your money sleep in a savings account at 1-2% interest and then invest it in an index fund when we hit the next recession?

P. S. The fact being that I actually don't follow that and I make monthly investments to my funds as soon as I receive the money in my payroll lol
I thought of waiting, too. But if the final top is years away - and who can say that it isn't? - then there's price for being in cash which could be paying less than the rate of inflation. I remember buying in 2008 and thinking, well at least my dividend paying stocks will give me something. And it worked. I couldn't stomach the piddling rates on cash.

TropikThunder
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Re: Which schedule is better when making periodic investments into an ETF

Post by TropikThunder » Mon Jun 17, 2019 8:47 pm

Carol88888 wrote:
Mon Jun 17, 2019 6:10 pm
adrihead wrote:
Mon Jun 17, 2019 5:55 pm
I have always thought that if you wait until we hit recession and the market goes down to make your lump sum investment... That's better than doing the lump sum investment now.

The market is going to crash sooner or later. Of course, during a recession there will always be the question of how much the market is going to go down and when is the minimum value the market will reach. But investing during the next recession is going to be cheaper than investing right now (after 10 years of market going up).

Why not letting your money sleep in a savings account at 1-2% interest and then invest it in an index fund when we hit the next recession?

P. S. The fact being that I actually don't follow that and I make monthly investments to my funds as soon as I receive the money in my payroll lol
I thought of waiting, too. But if the final top is years away - and who can say that it isn't? - then there's price for being in cash which could be paying less than the rate of inflation. I remember buying in 2008 and thinking, well at least my dividend paying stocks will give me something. And it worked. I couldn't stomach the piddling rates on cash.
I’m glad you responded that way as well, in addition to the comments from the seasoned veterans of the market timing wars. Will there be a recession in the future? Yes, but when, how far the market will drop, and what it will have risen to before falling are all unknowns that cannot reasonably be modeled or predicted.

The cardinal sin of waiting for a drop is that the bottom of tomorrow’s bear market may well still be higher than it is today. And the “wait for the drop” advocates are just as likely to continue waiting when it does finally happen.

Lee_WSP
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Re: Which schedule is better when making periodic investments into an ETF

Post by Lee_WSP » Mon Jun 17, 2019 9:02 pm

TropikThunder wrote:
Mon Jun 17, 2019 8:47 pm
The cardinal sin of waiting for a drop is that the bottom of tomorrow’s bear market may well still be higher than it is today. And the “wait for the drop” advocates are just as likely to continue waiting when it does finally happen.
Perhaps they're just following their risk tolerance - aka zero and are just trying to look smart or brave.

Topic Author
Carol88888
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Re: Which schedule is better when making periodic investments into an ETF

Post by Carol88888 » Tue Jun 18, 2019 11:27 am

Today it looks like my lump sum purchase was the right move. But even if the market had gone down, I would have known that what I did made sense. It's the not the outcome on any one specific bet - it's the process that was used to make the bet.

In poker, if you push your money in with the right odds and the cards don't fall your way - well, you still played it right.

Lee_WSP
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Re: Which schedule is better when making periodic investments into an ETF

Post by Lee_WSP » Tue Jun 18, 2019 1:02 pm

Carol88888 wrote:
Tue Jun 18, 2019 11:27 am
Today it looks like my lump sum purchase was the right move. But even if the market had gone down, I would have known that what I did made sense. It's the not the outcome on any one specific bet - it's the process that was used to make the bet.

In poker, if you push your money in with the right odds and the cards don't fall your way - well, you still played it right.
Yes, exactly. As long as the asset allocation is correct according to your risk tolerance, all in right away is the smart money move.

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