dollar cost averaging

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startsavego
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dollar cost averaging

Post by startsavego »

Hello,

Just wanted to get clarification on dollar cost averaging.

Is Dollar cost averaging dependent on fractionalized shares?
Does the amount set aside have to be the same amount?

I just want to make sure since the rules around it seems fairly rigid. I've heard statements that you can't dollar cost average certain assets because you can't own a fraction of it.
Marseille07
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Re: dollar cost averaging

Post by Marseille07 »

startsavego wrote: Fri May 13, 2022 11:55 am Hello,

Just wanted to get clarification on dollar cost averaging.

Is Dollar cost averaging dependent on fractionalized shares?
Does the amount set aside have to be the same amount?

I just want to make sure since the rules around it seems fairly rigid. I've heard statements that you can't dollar cost average certain assets because you can't own a fraction of it.
It's not rigid. It's whatever you decide to do, like buying 10K/mo of VTI or what have you. Fractional shares don't matter.
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mega317
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Re: dollar cost averaging

Post by mega317 »

To zoom in very closely on your question: the idea is that you invest the same amount each period. Wiggle of the price of 1 share is probably fine. Like if a share costs $100 and you have $150 available each period, you buy 1 and then 2 and then 1 and then 2. NBD.

Backing up a bit-what do you mean rigid rules?

Backing up further, what are you actually trying to do here? Maybe a more complete picture of your situation would get you more useful answers.

I don't know where most people learned about dollar cost averaging. For me it was high school and it was the single least useful thing I ever learned. If you are buying an asset that fluctuates in price but is generally flat, buying more shares on the low and fewer on the high will get you more money than if you bought say the same number of shares each time. But the assets you invest in are hopefully going up right? Then you want to get in ASAP in general. lots of caveats.
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bagastuff
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Re: dollar cost averaging

Post by bagastuff »

startsavego wrote: Fri May 13, 2022 11:55 am Hello,

Just wanted to get clarification on dollar cost averaging.

Is Dollar cost averaging dependent on fractionalized shares?
Does the amount set aside have to be the same amount?

I just want to make sure since the rules around it seems fairly rigid. I've heard statements that you can't dollar cost average certain assets because you can't own a fraction of it.
if your broker doesn't let you buy a fraction of a $2000 share like AMZN or GOOG then yes, DCA may not work well.
sailaway
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Re: dollar cost averaging

Post by sailaway »

DCA is a strategy, more than some set of hard and fast rules. While it may not technically be "averaging" to make small adjustments to get whole shares, it is sometimes necessary.

Most people do some kind of hybrid ad hoc system. Our periodic investing is only periodic for part of the year, until the 401k reaches it's max limit. Our lump sums, such as bonus and RSUs sometimes go to investing, sometimes to cash to be spent over the next few months. It depends on our current cash reserves and immediate plans, not some hard and fast rule.
Marseille07
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Re: dollar cost averaging

Post by Marseille07 »

bagastuff wrote: Fri May 13, 2022 12:06 pm if your broker doesn't let you buy a fraction of a $2000 share like AMZN or GOOG then yes, DCA may not work well.
Wth...it's not *that* exact. Some months you buy 3 shares, some months you buy 4. It's not a big deal even if you're DCAing AMZN or GOOG.
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bagastuff
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Re: dollar cost averaging

Post by bagastuff »

Marseille07 wrote: Fri May 13, 2022 12:10 pm
bagastuff wrote: Fri May 13, 2022 12:06 pm if your broker doesn't let you buy a fraction of a $2000 share like AMZN or GOOG then yes, DCA may not work well.
Wth...it's not *that* exact. Some months you buy 3 shares, some months you buy 4. It's not a big deal even if you're DCAing AMZN or GOOG.
Well you're not really dollar cost averaging at that point because the dollar cost is varying wildly from month to month.
Marseille07
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Re: dollar cost averaging

Post by Marseille07 »

bagastuff wrote: Fri May 13, 2022 12:15 pm Well you're not really dollar cost averaging at that point because the dollar cost is varying wildly from month to month.
Wildly? You might go 9K, 11K, 9K, 11K kinda thing, but still averaging 10K for example. I don't think that's wild and I don't see why it is such a big deal.
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bagastuff
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Re: dollar cost averaging

Post by bagastuff »

Marseille07 wrote: Fri May 13, 2022 12:17 pm
bagastuff wrote: Fri May 13, 2022 12:15 pm Well you're not really dollar cost averaging at that point because the dollar cost is varying wildly from month to month.
Wildly? You might go 9K, 11K, 9K, 11K kinda thing, but still averaging 10K for example. I don't think that's wild and I don't see why it is such a big deal.
If shares dip by 10% one month, you're supposed to get 10% more of them when you're dca'ing. But with amzn, you'll get the same number of shares and have cash left over. This is just not "dollar cost averaging".
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startsavego
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Re: dollar cost averaging

Post by startsavego »

bagastuff wrote: Fri May 13, 2022 12:06 pm
startsavego wrote: Fri May 13, 2022 11:55 am Hello,

Just wanted to get clarification on dollar cost averaging.

Is Dollar cost averaging dependent on fractionalized shares?
Does the amount set aside have to be the same amount?

I just want to make sure since the rules around it seems fairly rigid. I've heard statements that you can't dollar cost average certain assets because you can't own a fraction of it.
if your broker doesn't let you buy a fraction of a $2000 share like AMZN or GOOG then yes, DCA may not work well.
Yea, I don't get it, why is DCA dependent on Fractionalization?
Marseille07
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Re: dollar cost averaging

Post by Marseille07 »

bagastuff wrote: Fri May 13, 2022 12:21 pm If shares dip by 10% one month, you're supposed to get 10% more of them when you're dca'ing. But with amzn, you'll get the same number of shares and have cash left over. This is just not "dollar cost averaging".
It's not an exact science, but whatever floats your boat. I don't think this is a big deal, personally speaking.

If you're talking about BRK-A at 466K per share, then I'd agree though.
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bagastuff
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Re: dollar cost averaging

Post by bagastuff »

DCA is the practice of spending the same amount of dollars on recurring equity purchases.

You could of course purchase equities at consistent intervals without holding the dollar cost steady but that would not be DCA imo.

Not to discourage anyone from going with the latter if that's what works for them (e.g. if they have different amounts of money leftover each month).
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startsavego
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Re: dollar cost averaging

Post by startsavego »

mega317 wrote: Fri May 13, 2022 12:02 pm To zoom in very closely on your question: the idea is that you invest the same amount each period. Wiggle of the price of 1 share is probably fine. Like if a share costs $100 and you have $150 available each period, you buy 1 and then 2 and then 1 and then 2. NBD.

Backing up a bit-what do you mean rigid rules?

Backing up further, what are you actually trying to do here? Maybe a more complete picture of your situation would get you more useful answers.

I don't know where most people learned about dollar cost averaging. For me it was high school and it was the single least useful thing I ever learned. If you are buying an asset that fluctuates in price but is generally flat, buying more shares on the low and fewer on the high will get you more money than if you bought say the same number of shares each time. But the assets you invest in are hopefully going up right? Then you want to get in ASAP in general. lots of caveats.
it's fairly rigid,
like you have to put the same amount of money in each month and it's dependent on fractionalization.
otherwise it's useless...
Scorpion Stare
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Re: dollar cost averaging

Post by Scorpion Stare »

startsavego wrote: Fri May 13, 2022 12:32 pm like you have to put the same amount of money in each month and it's dependent on fractionalization.
otherwise it's useless...
No, it's not "useless." If you buy slightly different dollar amounts each month, you will get almost the same results as if you could buy the exact same dollar amount each month.

If your contribution in dollars varies by a large amount from month to month, then your results may diverge more, but you will still accumulate shares over a period of time, and you still get the same basic benefit (exposure to different prices over time).

The only time that the whole-share price makes DCA completely "useless" is if you can't even afford a single share each period.
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firebirdparts
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Re: dollar cost averaging

Post by firebirdparts »

bagastuff wrote: Fri May 13, 2022 12:15 pm Well you're not really dollar cost averaging at that point because the dollar cost is varying wildly from month to month.
Are you in the accounting department? Be honest.
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sailaway
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Re: dollar cost averaging

Post by sailaway »

startsavego wrote: Fri May 13, 2022 12:32 pm
mega317 wrote: Fri May 13, 2022 12:02 pm To zoom in very closely on your question: the idea is that you invest the same amount each period. Wiggle of the price of 1 share is probably fine. Like if a share costs $100 and you have $150 available each period, you buy 1 and then 2 and then 1 and then 2. NBD.

Backing up a bit-what do you mean rigid rules?

Backing up further, what are you actually trying to do here? Maybe a more complete picture of your situation would get you more useful answers.

I don't know where most people learned about dollar cost averaging. For me it was high school and it was the single least useful thing I ever learned. If you are buying an asset that fluctuates in price but is generally flat, buying more shares on the low and fewer on the high will get you more money than if you bought say the same number of shares each time. But the assets you invest in are hopefully going up right? Then you want to get in ASAP in general. lots of caveats.
it's fairly rigid,
like you have to put the same amount of money in each month and it's dependent on fractionalization.
otherwise it's useless...
What do you see as the benefits to DCA? How does buying whole shares negate those benefits?
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ResearchMed
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Re: dollar cost averaging

Post by ResearchMed »

startsavego wrote: Fri May 13, 2022 12:32 pm
mega317 wrote: Fri May 13, 2022 12:02 pm To zoom in very closely on your question: the idea is that you invest the same amount each period. Wiggle of the price of 1 share is probably fine. Like if a share costs $100 and you have $150 available each period, you buy 1 and then 2 and then 1 and then 2. NBD.

Backing up a bit-what do you mean rigid rules?

Backing up further, what are you actually trying to do here? Maybe a more complete picture of your situation would get you more useful answers.

I don't know where most people learned about dollar cost averaging. For me it was high school and it was the single least useful thing I ever learned. If you are buying an asset that fluctuates in price but is generally flat, buying more shares on the low and fewer on the high will get you more money than if you bought say the same number of shares each time. But the assets you invest in are hopefully going up right? Then you want to get in ASAP in general. lots of caveats.
it's fairly rigid,
like you have to put the same amount of money in each month and it's dependent on fractionalization.
otherwise it's useless...
Oh DRAT!
I had $99.99 last month instead of the regular $100 per month. So I guess I was wrong to buy $99.99 worth of <whatever>, eh?
That would have been... "useless"?
:confused

That rigidity is nonsensical.

First definition link via Google, from Investopedia:

"What Is Dollar-Cost Averaging (DCA)?

Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.

In effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices..."


That looks close enough for government work, etc.
And note the "periodic purchases".

If one ends up putting in money every 2 months instead of everymonth, when one has "enough"... What is the problem there? Or investing every week? If investing every week is "good", then apparently that would make investing every month... "useless"?
Really?

RM
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Topic Author
startsavego
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Re: dollar cost averaging

Post by startsavego »

ResearchMed wrote: Fri May 13, 2022 12:54 pm
startsavego wrote: Fri May 13, 2022 12:32 pm
mega317 wrote: Fri May 13, 2022 12:02 pm To zoom in very closely on your question: the idea is that you invest the same amount each period. Wiggle of the price of 1 share is probably fine. Like if a share costs $100 and you have $150 available each period, you buy 1 and then 2 and then 1 and then 2. NBD.

Backing up a bit-what do you mean rigid rules?

Backing up further, what are you actually trying to do here? Maybe a more complete picture of your situation would get you more useful answers.

I don't know where most people learned about dollar cost averaging. For me it was high school and it was the single least useful thing I ever learned. If you are buying an asset that fluctuates in price but is generally flat, buying more shares on the low and fewer on the high will get you more money than if you bought say the same number of shares each time. But the assets you invest in are hopefully going up right? Then you want to get in ASAP in general. lots of caveats.
it's fairly rigid,
like you have to put the same amount of money in each month and it's dependent on fractionalization.
otherwise it's useless...
Oh DRAT!
I had $99.99 last month instead of the regular $100 per month. So I guess I was wrong to buy $99.99 worth of <whatever>, eh?
That would have been... "useless"?
:confused

That rigidity is nonsensical.

First definition link via Google, from Investopedia:

"What Is Dollar-Cost Averaging (DCA)?

Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.

In effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices..."


That looks close enough for government work, etc.
And note the "periodic purchases".

If one ends up putting in money every 2 months instead of everymonth, when one has "enough"... What is the problem there? Or investing every week? If investing every week is "good", then apparently that would make investing every month... "useless"?
Really?

RM
yea it's useless
apparently you have to do the same amount, the same period, every time...and it's dependent on fractionalization...kinda useless.
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ResearchMed
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Re: dollar cost averaging

Post by ResearchMed »

startsavego wrote: Fri May 13, 2022 1:10 pm
ResearchMed wrote: Fri May 13, 2022 12:54 pm
startsavego wrote: Fri May 13, 2022 12:32 pm
mega317 wrote: Fri May 13, 2022 12:02 pm To zoom in very closely on your question: the idea is that you invest the same amount each period. Wiggle of the price of 1 share is probably fine. Like if a share costs $100 and you have $150 available each period, you buy 1 and then 2 and then 1 and then 2. NBD.

Backing up a bit-what do you mean rigid rules?

Backing up further, what are you actually trying to do here? Maybe a more complete picture of your situation would get you more useful answers.

I don't know where most people learned about dollar cost averaging. For me it was high school and it was the single least useful thing I ever learned. If you are buying an asset that fluctuates in price but is generally flat, buying more shares on the low and fewer on the high will get you more money than if you bought say the same number of shares each time. But the assets you invest in are hopefully going up right? Then you want to get in ASAP in general. lots of caveats.
it's fairly rigid,
like you have to put the same amount of money in each month and it's dependent on fractionalization.
otherwise it's useless...
Oh DRAT!
I had $99.99 last month instead of the regular $100 per month. So I guess I was wrong to buy $99.99 worth of <whatever>, eh?
That would have been... "useless"?
:confused

That rigidity is nonsensical.

First definition link via Google, from Investopedia:

"What Is Dollar-Cost Averaging (DCA)?

Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.

In effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices..."


That looks close enough for government work, etc.
And note the "periodic purchases".

If one ends up putting in money every 2 months instead of everymonth, when one has "enough"... What is the problem there? Or investing every week? If investing every week is "good", then apparently that would make investing every month... "useless"?
Really?

RM
yea it's useless
apparently you have to do the same amount, the same period, every time...and it's dependent on fractionalization...kinda useless.
Nope, that's our point.
One does NOT have to have the "same amount" every time.

Where did you get that incorrect orthodoxy?

Also, some perspectives view DCA as being the "right label" when one has a lump sum sitting right there, and divvies up the total to invest over X periods, without regard for the value of the investment target, rather than lumpsumming that total amount. In this case, everything except that final investment *can* be "exactly the same amount" by design/implementation. Only that final residual might be different, if one had made all the others "equal".

Note that others include investing money "whenver it is available" (e.g., from periodic paychecks) as a form of DCA.
Neither of those require the rigidity you are claiming.

RM
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sailaway
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Re: dollar cost averaging

Post by sailaway »

startsavego wrote: Fri May 13, 2022 1:07 pm

Yea it's rigid...
and it's pretty useless
This makes it sound like you aren't discussing in good faith, but rather trying to establish arbitrary rules (DCA must be exactly the same amount each time) to prove your opinion (DCA is useless).

In order to reach the claim that DCA is useless, we need to look at the perceived benefits, as well as actual definitions. You just keep repeating "It's rigid...it's useless" without actually engaging in what you mean by any of that.
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vineviz
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Re: dollar cost averaging

Post by vineviz »

startsavego wrote: Fri May 13, 2022 1:10 pm yea it's useless
apparently you have to do the same amount, the same period, every time...and it's dependent on fractionalization...kinda useless.
If you truly think this, I don't believe you understand the concept of dollar cost averaging.
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Beensabu
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Re: dollar cost averaging

Post by Beensabu »

Here's a definition:
Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.
https://www.investopedia.com/terms/d/do ... raging.asp

You can make the periodic purchases be of exactly equal amounts, but you don't have to.

The whole point of DCA is periodic purchases at regular intervals.

You can impose a rule on yourself where one doesn't exist, if you want to.

If you do not have the dollars to buy one whole expensive thing that is not available for fractional purchase, then you can't DCA into that thing. That is true. Sure. You win. DCA is totally useless for everyone everywhere because of that particular qualifier.
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Re: dollar cost averaging

Post by Misenplace »

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