Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

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teelainen
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Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by teelainen » Wed Mar 25, 2020 5:18 pm

In 1929, it took another 4-5 years before the stock market reached the bottom. So it seems like that depression took 5 years to bottom out. Since that's the only reference we have to go by in US history, what are your thoughts on Dollar Cost Averaging all your money each month (over the course of 5 years). Is that a good idea?

So let's say hypothetically someone today had $1 million in investable assets, would it be a good idea to dollar cost average all that money into the S&P 500 each month (over the course of 5 years). That would be a total of 60 monthly purchases, spread out over 5 years.

If we do have a recession or depression in the near future, it could take sooner than 5 years to bottom out or it could take longer than 5 years to bottom out. Nobody knows. It is also possible that a recession or depression never happens.

But due to recent events in the world now, what are your thoughts on spreading out your bets over the course of 5 years?

MotoTrojan
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by MotoTrojan » Wed Mar 25, 2020 5:22 pm

If you knew it advance this would be a depression I would just use your mystic powers to determine when the low will be and lump sum invest then.

If you aren’t a psychic then I’d pick an asset allocation you’re comfortable with and plow as much money into that AA as soon as you can, only selling when you need to spend it.

rbaldini
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by rbaldini » Wed Mar 25, 2020 5:22 pm

The typical critique of DCA is this: what is different about 5 years from right now? Or 1 year from now, 2 years, etc. Let's say you do this plan, and become increasingly invested over time. In 5 years, what then? Do you pull it all out and start over again on the 5 year plan? If not, why not? How are you different then than you are now? Why is it ok to be fully invested 5 years from now, but not now?

Generally I'd suggest: just pick an asset allocation you are comfortable with and do it all now. That is, instead of gradually going from 0% to 100% in an arbitrary timescale, just pick 70/30 (or whatever you want) and stick to it. Scared that you'l lose too much by immediately going 70/30? Then try 60/40. Repeat.

Apart from that general critique, it's fine.
Last edited by rbaldini on Wed Mar 25, 2020 5:34 pm, edited 1 time in total.

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firebirdparts
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by firebirdparts » Wed Mar 25, 2020 5:27 pm

Probably a bad idea, but you never know. There is certainly a limited downside to that plan. Probably not going to ruin you.
A fool and your money are soon partners

Ferdinand2014
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by Ferdinand2014 » Wed Mar 25, 2020 8:08 pm

teelainen wrote:
Wed Mar 25, 2020 5:18 pm
In 1929, it took another 4-5 years before the stock market reached the bottom. So it seems like that depression took 5 years to bottom out. Since that's the only reference we have to go by in US history, what are your thoughts on Dollar Cost Averaging all your money each month (over the course of 5 years). Is that a good idea?

So let's say hypothetically someone today had $1 million in investable assets, would it be a good idea to dollar cost average all that money into the S&P 500 each month (over the course of 5 years). That would be a total of 60 monthly purchases, spread out over 5 years.

If we do have a recession or depression in the near future, it could take sooner than 5 years to bottom out or it could take longer than 5 years to bottom out. Nobody knows. It is also possible that a recession or depression never happens.

But due to recent events in the world now, what are your thoughts on spreading out your bets over the course of 5 years?
“If you like spending 6–8 hours per week on investments, do it. If you don’t, then dollar-cost average into index funds. This accomplishes diversification across assets and time, two very important things.”

“If you invested in a very low-cost index fund—where you don’t put the money in at one time, but average in over 10 years—you’ll do better than 90% of people who start investing at the same time.”

Warren Buffett
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

bugleheadd
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by bugleheadd » Wed Mar 25, 2020 8:12 pm

it beats lump sum 33% of the time so i hear. perhaps this is one of those times, or not.

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tvubpwcisla
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by tvubpwcisla » Wed Mar 25, 2020 8:12 pm

This could be a good plan. It's hard to say as it is difficult to predict the behavior of the market. My advice would be to come up with a plan and then stick to it. I personally believe that time in the market is better than market timing. :beer
The secret to building wealth is to have a plan, keep expenses low, become an expert in your craft, consistently buy the market, diversify, establish multiple income streams, and always smile.

Thesaints
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by Thesaints » Wed Mar 25, 2020 8:14 pm

teelainen wrote:
Wed Mar 25, 2020 5:18 pm
In 1929, it took another 4-5 years before the stock market reached the bottom. So it seems like that depression took 5 years to bottom out. Since that's the only reference we have to go by in US history, what are your thoughts on Dollar Cost Averaging all your money each month (over the course of 5 years). Is that a good idea?

So let's say hypothetically someone today had $1 million in investable assets, would it be a good idea to dollar cost average all that money into the S&P 500 each month (over the course of 5 years). That would be a total of 60 monthly purchases, spread out over 5 years.

If we do have a recession or depression in the near future, it could take sooner than 5 years to bottom out or it could take longer than 5 years to bottom out. Nobody knows. It is also possible that a recession or depression never happens.

But due to recent events in the world now, what are your thoughts on spreading out your bets over the course of 5 years?
How long do you want to keep it invested for ?

reln
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by reln » Wed Mar 25, 2020 8:48 pm

teelainen wrote:
Wed Mar 25, 2020 5:18 pm
In 1929, it took another 4-5 years before the stock market reached the bottom. So it seems like that depression took 5 years to bottom out. Since that's the only reference we have to go by in US history, what are your thoughts on Dollar Cost Averaging all your money each month (over the course of 5 years). Is that a good idea?

So let's say hypothetically someone today had $1 million in investable assets, would it be a good idea to dollar cost average all that money into the S&P 500 each month (over the course of 5 years). That would be a total of 60 monthly purchases, spread out over 5 years.

If we do have a recession or depression in the near future, it could take sooner than 5 years to bottom out or it could take longer than 5 years to bottom out. Nobody knows. It is also possible that a recession or depression never happens.

But due to recent events in the world now, what are your thoughts on spreading out your bets over the course of 5 years?
Bad idea.

razorbacker
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by razorbacker » Wed Mar 25, 2020 9:03 pm

bugleheadd wrote:
Wed Mar 25, 2020 8:12 pm
it beats lump sum 33% of the time so i hear. perhaps this is one of those times, or not.
With the market so low now relatively speaking, seems like the odds would greatly favor lump summing to your AA soon. I certainly would not spread it over 5 years, maybe 6-12 months depending on your investing horizon of course.

JustinR
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by JustinR » Wed Mar 25, 2020 9:40 pm

teelainen wrote:
Wed Mar 25, 2020 5:18 pm
In 1929, it took another 4-5 years before the stock market reached the bottom. So it seems like that depression took 5 years to bottom out. Since that's the only reference we have to go by in US history, what are your thoughts on Dollar Cost Averaging all your money each month (over the course of 5 years). Is that a good idea?

So let's say hypothetically someone today had $1 million in investable assets, would it be a good idea to dollar cost average all that money into the S&P 500 each month (over the course of 5 years). That would be a total of 60 monthly purchases, spread out over 5 years.

If we do have a recession or depression in the near future, it could take sooner than 5 years to bottom out or it could take longer than 5 years to bottom out. Nobody knows. It is also possible that a recession or depression never happens.

But due to recent events in the world now, what are your thoughts on spreading out your bets over the course of 5 years?
Your strategy is better 33% of the time and worse 66% of the time.

Take that as you will.

m@ver1ck
Posts: 178
Joined: Fri Sep 14, 2018 2:18 pm

Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by m@ver1ck » Wed Mar 25, 2020 9:47 pm

FWIW -
I’ll continue putting money into 401K - ASAP.
I’m tax loss harvesting - and ploughing in the money into kids 529s. I’m putting in a total of 90K away this year - and won’t be putting away any more money into 529s. They Are 3 and 9 now.

J295
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Re: Dollar Cost Average all your money each month (over the course of 5 years) - Good idea?

Post by J295 » Wed Mar 25, 2020 9:49 pm

I am remaining invested per our IPS as I believe that market timing is not a solid risk adjusted strategy.

(Like many others I could implement your hypothetical plan by liquidating all equities within our retirement accounts then investing back in over the five years).

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