lump sum investing vs dollar cost averaging in the present market

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bertilak
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Re: lump sum investing vs dollar cost averaging in the present market

Post by bertilak » Sun Jun 28, 2020 9:08 am

Lauretta wrote:
Sun Jun 28, 2020 8:29 am
I find it more confortable do it a bit each fortnight. So DCA is probably analogous to my rebalancing habits that make me more confortable.
First, those re-balancing habits are DCA, not just analogous to DCA. Analogous is too weak a word.

Second, the big question is, what is it that makes it more comfortable for you? That's the real point that people here have been trying to get at. It is hard to do so when the conversation either keeps getting steered back to the beginning or wanders off into irrelevant issues -- all without taking into account points that have already been made.

"If it feels good, do it" was said facetiously back in the '60s (I was there) to either:
  • mock people who seemed to be thinking that way (starry-eyed Hippies), or
  • annoy people who were strongly offended by it (prudes).
But that "benefit" of DCA keeps popping up!
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Lauretta
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Re: lump sum investing vs dollar cost averaging in the present market

Post by Lauretta » Sun Jun 28, 2020 10:51 am

bertilak wrote:
Sun Jun 28, 2020 9:08 am


Second, the big question is, what is it that makes it more comfortable for you? That's the real point that people here have been trying to get at.
Well it feels confortable because if I put all the money in on a preset day, it might be on a peak. Instead I invest when the market is down (for example I'll put some money in on Monday if it does not go up after Friday's drop). Difficult to compare with rebalancing all in a single day, since it would depend on the day you choose to compare it with and on the rebalancing frequency.
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Re: lump sum investing vs dollar cost averaging in the present market

Post by whereskyle » Sun Jun 28, 2020 10:54 am

Lauretta wrote:
Sun Jun 28, 2020 10:51 am
bertilak wrote:
Sun Jun 28, 2020 9:08 am


Second, the big question is, what is it that makes it more comfortable for you? That's the real point that people here have been trying to get at.
Well it feels confortable because if I put all the money in on a preset day, it might be on a peak. Instead I invest when the market is down (for example I'll put some money in on Monday if it does not go up after Friday's drop). Difficult to compare with rebalancing all in a single day, since it would depend on the day you choose to compare it with and on the rebalancing frequency.
Trust me. Waiting for a down day and deciding if it is down enough or too high is entirely arbitrary and destructive not only to rational investing but to your mental health as well. I've done it, and I don't do it anymore, even after I've lumpsummed and seen the market drop by 20% the next week. Timing the market is excruciating, and you usually end up worse of than if you hadn't tried.

What is your planned asset allocation for this investment? As I've said before in this thread, that is all you can control when investing. Do you think your chosen AA reflects your risk tolerance? Have you considered a sizable bond allocation so that you can rebalance into stocks if there is a crash, which you seem particularly preoccupied with.
Last edited by whereskyle on Sun Jun 28, 2020 10:59 am, edited 1 time in total.
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Re: lump sum investing vs dollar cost averaging in the present market

Post by Lauretta » Sun Jun 28, 2020 10:55 am

bertilak wrote:
Sun Jun 28, 2020 9:08 am


But that "benefit" of DCA keeps popping up!
well according to this article there is a real benefit, i.e. it limits maximal drawdown. This is important to me as I have more than enough, I am more interested in mitigating the risk of a big drawdown than in maximising my profits
https://blog.thinknewfound.com/2018/02/ ... t-average/
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Re: lump sum investing vs dollar cost averaging in the present market

Post by Lauretta » Sun Jun 28, 2020 10:59 am

whereskyle wrote:
Sun Jun 28, 2020 10:54 am
Lauretta wrote:
Sun Jun 28, 2020 10:51 am
bertilak wrote:
Sun Jun 28, 2020 9:08 am


Second, the big question is, what is it that makes it more comfortable for you? That's the real point that people here have been trying to get at.
Well it feels confortable because if I put all the money in on a preset day, it might be on a peak. Instead I invest when the market is down (for example I'll put some money in on Monday if it does not go up after Friday's drop). Difficult to compare with rebalancing all in a single day, since it would depend on the day you choose to compare it with and on the rebalancing frequency.
What is your planned asset allocation for this investment?
I am putting most of it into stocks since I want to get to about 65-70% stocks (I am below 60 at present with the money I have invested, because of the drop). I say 65-70% because I used to allocate 60% to stocks but reading a number of threads like then one on Siegel or others, advocating 75% in stocks, I am telling myself that it's probably smart to put more into stocks since cash is trash and bonds are a very bad investment particularly in Europe where I live.
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Re: lump sum investing vs dollar cost averaging in the present market

Post by whereskyle » Sun Jun 28, 2020 11:07 am

Lauretta wrote:
Sun Jun 28, 2020 10:59 am
whereskyle wrote:
Sun Jun 28, 2020 10:54 am
Lauretta wrote:
Sun Jun 28, 2020 10:51 am
bertilak wrote:
Sun Jun 28, 2020 9:08 am


Second, the big question is, what is it that makes it more comfortable for you? That's the real point that people here have been trying to get at.
Well it feels confortable because if I put all the money in on a preset day, it might be on a peak. Instead I invest when the market is down (for example I'll put some money in on Monday if it does not go up after Friday's drop). Difficult to compare with rebalancing all in a single day, since it would depend on the day you choose to compare it with and on the rebalancing frequency.
What is your planned asset allocation for this investment?
I am putting most of it into stocks since I want to get to about 65-70% stocks (I am below 60 at present with the money I have invested, because of the drop). I say 65-70% because I used to allocate 60% to stocks but reading a number of threads like then one on Siegel or others, advocating 75% in stocks, I am telling myself that it's probably smart to put more into stocks since cash is trash and bonds are a very bad investment particularly in Europe where I live.
Have you asked yourself whether you are considering DCAing because you are trying to put more money into stocks than you are actually comfortable with? Whether you put the money in now or later, for as long as you have 75% in stocks, you should be comfortable with your balance dropping by about 35% at any time, even after you have DCAed. Are you comfortable with that?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

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Re: lump sum investing vs dollar cost averaging in the present market

Post by Lauretta » Sun Jun 28, 2020 11:20 am

whereskyle wrote:
Sun Jun 28, 2020 11:07 am
Lauretta wrote:
Sun Jun 28, 2020 10:59 am
whereskyle wrote:
Sun Jun 28, 2020 10:54 am
Lauretta wrote:
Sun Jun 28, 2020 10:51 am
bertilak wrote:
Sun Jun 28, 2020 9:08 am


Second, the big question is, what is it that makes it more comfortable for you? That's the real point that people here have been trying to get at.
Well it feels confortable because if I put all the money in on a preset day, it might be on a peak. Instead I invest when the market is down (for example I'll put some money in on Monday if it does not go up after Friday's drop). Difficult to compare with rebalancing all in a single day, since it would depend on the day you choose to compare it with and on the rebalancing frequency.
What is your planned asset allocation for this investment?
I am putting most of it into stocks since I want to get to about 65-70% stocks (I am below 60 at present with the money I have invested, because of the drop). I say 65-70% because I used to allocate 60% to stocks but reading a number of threads like then one on Siegel or others, advocating 75% in stocks, I am telling myself that it's probably smart to put more into stocks since cash is trash and bonds are a very bad investment particularly in Europe where I live.
Have you asked yourself whether you are considering DCAing because you are trying to put more money into stocks than you are actually comfortable with? Whether you put the money in now or later, for as long as you have 75% in stocks, you should be comfortable with your balance dropping by about 35% at any time, even after you have DCAed. Are you comfortable with that?
that is a great point thank you. To be honest, I am not that comfortable with 75% in stocks but I don't see a better alternative since cash and bonds are a very bad long term investment particularly in Europe where I live.
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whereskyle
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Re: lump sum investing vs dollar cost averaging in the present market

Post by whereskyle » Sun Jun 28, 2020 12:31 pm

Lauretta wrote:
Sun Jun 28, 2020 11:20 am
whereskyle wrote:
Sun Jun 28, 2020 11:07 am
Lauretta wrote:
Sun Jun 28, 2020 10:59 am
whereskyle wrote:
Sun Jun 28, 2020 10:54 am
Lauretta wrote:
Sun Jun 28, 2020 10:51 am


Well it feels confortable because if I put all the money in on a preset day, it might be on a peak. Instead I invest when the market is down (for example I'll put some money in on Monday if it does not go up after Friday's drop). Difficult to compare with rebalancing all in a single day, since it would depend on the day you choose to compare it with and on the rebalancing frequency.
What is your planned asset allocation for this investment?
I am putting most of it into stocks since I want to get to about 65-70% stocks (I am below 60 at present with the money I have invested, because of the drop). I say 65-70% because I used to allocate 60% to stocks but reading a number of threads like then one on Siegel or others, advocating 75% in stocks, I am telling myself that it's probably smart to put more into stocks since cash is trash and bonds are a very bad investment particularly in Europe where I live.
Have you asked yourself whether you are considering DCAing because you are trying to put more money into stocks than you are actually comfortable with? Whether you put the money in now or later, for as long as you have 75% in stocks, you should be comfortable with your balance dropping by about 35% at any time, even after you have DCAed. Are you comfortable with that?
that is a great point thank you. To be honest, I am not that comfortable with 75% in stocks but I don't see a better alternative since cash and bonds are a very bad long term investment particularly in Europe where I live.
I am not an expert, but perhaps it makes sense (and perhaps low-cost options exist) to invest in US bonds even though you are in Europe. It might be a better way for you to address your risk tolerance. As we've said, you will likely bear the same risks to your equity position regardless of your decision to DCA. Jack Bogle famously maintained a 50/50 portfolio for many years. Even if that is just not acceptable to you now due to current yields, why not stick with 60/40 if that's been working for you? We do not know the future of the bond market, but no matter what you will be reinvesting your yields. You shouldn't put more in stocks unless you are willing to assume their risks. Timing does not reliably change their risks.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

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Re: lump sum investing vs dollar cost averaging in the present market

Post by Lauretta » Sun Jun 28, 2020 1:59 pm

whereskyle wrote:
Sun Jun 28, 2020 12:31 pm

I am not an expert, but perhaps it makes sense (and perhaps low-cost options exist) to invest in US bonds even though you are in Europe. It might be a better way for you to address your risk tolerance.
Yes US bonds have higher yields but it's not generally recommended to invest in bonds denominated in a foreign currency because of currency risk.
But your point about risk tolerance is valid. In the long term I am pretty confident that stocks are a good investment, but if I go 75% in stocks and stocks were to have a 50% drawdown I would lose close to 1M$ (at least as a paper loss), which would feel terrible.
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Re: lump sum investing vs dollar cost averaging in the present market

Post by whereskyle » Sun Jun 28, 2020 3:09 pm

Lauretta wrote:
Sun Jun 28, 2020 1:59 pm
whereskyle wrote:
Sun Jun 28, 2020 12:31 pm

I am not an expert, but perhaps it makes sense (and perhaps low-cost options exist) to invest in US bonds even though you are in Europe. It might be a better way for you to address your risk tolerance.
Yes US bonds have higher yields but it's not generally recommended to invest in bonds denominated in a foreign currency because of currency risk.
But your point about risk tolerance is valid. In the long term I am pretty confident that stocks are a good investment, but if I go 75% in stocks and stocks were to have a 50% drawdown I would lose close to 1M$ (at least as a paper loss), which would feel terrible.
I recommend 50/50 as a starting point for your asset allocation, even if you resort to CDs or other low-risk instruments for your fixed income portion. I think you will find that devoting time to specifying your asset allocation will be more fruitful than worrying about when exactly to enter the market. I think you will also find that your worries about timing will fade once you select an asset allocation you are actually comfortable with.

Good luck!
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

YRT70
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Re: lump sum investing vs dollar cost averaging in the present market

Post by YRT70 » Sun Jun 28, 2020 9:24 pm

Lauretta wrote:
Sun Jun 28, 2020 1:59 pm
Yes US bonds have higher yields but it's not generally recommended to invest in bonds denominated in a foreign currency because of currency risk.
Correct.

Lauretta, you may be interested in reading the thread a started a while back asking a very similar question as yours. It starts here: viewtopic.php?f=10&t=310488#p5153473

Unfortunately one of the mods decided to merge my thread with another, which you may notice does not make any sense at all.

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Re: lump sum investing vs dollar cost averaging in the present market

Post by Lauretta » Mon Jun 29, 2020 12:20 am

YRT70 wrote:
Sun Jun 28, 2020 9:24 pm
Lauretta wrote:
Sun Jun 28, 2020 1:59 pm
Yes US bonds have higher yields but it's not generally recommended to invest in bonds denominated in a foreign currency because of currency risk.
Correct.

Lauretta, you may be interested in reading the thread a started a while back asking a very similar question as yours. It starts here: viewtopic.php?f=10&t=310488#p5153473

Unfortunately one of the mods decided to merge my thread with another, which you may notice does not make any sense at all.
Thank you, yes that's very interesting, basically the same question as mine! And indeed it has nothing to do with buying individual stocks so the merge is a bit puzzling to me too. :confused
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Re: lump sum investing vs dollar cost averaging in the present market

Post by Robot Monster » Mon Jun 29, 2020 8:15 am

Lauretta wrote:
Sun Jun 28, 2020 11:20 am
To be honest, I am not that comfortable with 75% in stocks but I don't see a better alternative since cash and bonds are a very bad long term investment particularly in Europe where I live.
If you allocate money to cash and bonds now, they need not necessarily be long term investments if you slowly DCA that money into stocks, perhaps over a five year period. You could divide your money amongst three strategies: 1) lump sum, 2) DCA over months, 3) DCA over years.

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Re: lump sum investing vs dollar cost averaging in the present market

Post by firebirdparts » Mon Jun 29, 2020 10:35 am

I endeavor never to defend myself, so in that vein, I would totally DCA if I were you, and I'd just admit I was market timing. The world's on fire. There's no need to use the word "volatile" when the world's on fire. The world might not be on fire later, but unfortunately that doesn't really tell you what the S&P500 will be then.

Will there be a leg down? I don't know. If I did, then I wouldn't have a need to DCA. If somebody says "never time the market" just admit you couldn't hold out and be done with it.

Good problem to have, I say. Bring on the "large sums of money". I've never had one, so please don't ask me any questions about what I'm doing with mine.
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Re: lump sum investing vs dollar cost averaging in the present market

Post by alluringreality » Mon Jun 29, 2020 11:24 am

Lauretta wrote:
Sat Jun 27, 2020 9:36 am
What are your thoughts on this, and over how long a time frame do you think it is reasonable to DCA?
I generally look at dollar cost averaging and lump-sum from a behavioral or practical perspective, and I tend to question if some "rational" perspectives might also include irrational aspects (overconfidence, extrapolation, etc.). Similar to the book disclaimers I've read, I prefer to avoid any suggestions around how someone "should" invest. The following link tended to address my own questions regarding length of DCA from a historical perspective. Since the S&P 500 generally went up over the timeframe examined, shorter DCA periods tended to limit average underperformance for DCA, and longer DCA periods provided more time to include a worst case scenario for lump-sum.
http://www.efficientfrontier.com/ef/997/dca.htm

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Re: lump sum investing vs dollar cost averaging in the present market

Post by garlandwhizzer » Mon Jun 29, 2020 2:18 pm

If I were doing it now I would probably DCA over a 12 month time span because I suspect that the market over the next 12 months is going to offer a better entry point that now. The gulf between the economy and the market is as wide as I can recall. I think at some point the two will get closer aligned with either the economy catching up to the market or the market coming down to the economy. I consider the latter possible in the near term unless we come up with a vaccine and get herd immunity sooner than many expect. If that happens there will likely be at least a short term powerful bull. Like everything else there's a slight/modest risk taking either approach in the short term. In the long term if you have a long time frame, it makes little difference. DCA is perhaps emotionally easier, keeping some dry powder in case the S&P 500 gets back to 2600 or so which would be a good entry point IMO. Most of the time, however, lump sum wins. The problem I have with lump sum now is that I believe the exuberant bull market since the lows of 3/23/20 has been largely driven by just by sentiment with the help of FED/Congress backstop. Sentiment can change drastically in a hurry. The FED and Congress can be a backstop but they cannot create sufficient aggregate demand to drive sustainable economic growth which is needed to sustain a bull market.

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Re: lump sum investing vs dollar cost averaging in the present market

Post by Lee_WSP » Mon Jun 29, 2020 2:46 pm

firebirdparts wrote:
Mon Jun 29, 2020 10:35 am
I endeavor never to defend myself, so in that vein, I would totally DCA if I were you, and I'd just admit I was market timing. The world's on fire. There's no need to use the word "volatile" when the world's on fire. The world might not be on fire later, but unfortunately that doesn't really tell you what the S&P500 will be then.

Will there be a leg down? I don't know. If I did, then I wouldn't have a need to DCA. If somebody says "never time the market" just admit you couldn't hold out and be done with it.

Good problem to have, I say. Bring on the "large sums of money". I've never had one, so please don't ask me any questions about what I'm doing with mine.
I approve of this response. Investing is personal, the decision is our own.

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