Low Beta vs High Beta & Lump Sum vs DCA

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Posts: 2489
Joined: Thu Jun 27, 2013 2:15 pm

Low Beta vs High Beta & Lump Sum vs DCA

Post by an_asker » Tue Nov 05, 2019 8:46 am

I did a little excel spreadsheeting but my results were counter-intuitive. I suspect it might have been because my spreadsheeting was not really thorough. What am I talking about?

Here's my question:

For lump sum investing, obviously you want to have your money in a fund that gives you the greatest return at the lowest beta (or deviation).

For DCA, I thought - wouldn't it make more sense to put it in the same kind of fund, but one with a higher beta? In the latter, you would purchase more when the beta swings it way below the fund with lower beta and less when the beta swings it way above that competing fund. But my spreadsheet analysis was too limited as it showed that the fund with the lower beta would still be better. I am curious if someone has checked out this theory somewhere - either someone on Bogleheads or someone out there?


Posts: 148
Joined: Sun Oct 13, 2019 3:16 pm

Re: Low Beta vs High Beta & Lump Sum vs DCA

Post by Uncorrelated » Tue Nov 05, 2019 3:16 pm

For dollar cost averaging vs lump sum, the following mathematical paper can be helpful: An Introduction to Computational Finance Without Agonizing Pain. Theory 1 on page 119 proves a proof that lump sum investing is better than a glidepath, and 12.4.2. states that this result means that lump sum investment is always better than DCA.

From this theory we can directly say that low/high beta lump sum is better than low/high beta DCA. How about lump sum low beta vs high beta? Conventional finance theory states that higher beta results in higher return but more risk. Whether that is worth it depends on your personal risk preferences.

Posts: 647
Joined: Tue Oct 01, 2019 2:36 pm

Re: Low Beta vs High Beta & Lump Sum vs DCA

Post by retired@50 » Tue Nov 05, 2019 5:24 pm

While lump sum may be better, this isn't how most people come by their money. Dollar cost averaging with every paycheck is popular for a reason, it's the way most savers earn and invest. As far as Beta goes, I used a beta of 1.0 and owned the market index. Easy.


Post Reply