Dollar Cost Averaging

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roccodean
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Dollar Cost Averaging

Post by roccodean »

Hello all. I have had money sitting on the sideline and want to put it in play (mix of etfs 60/40 equity/stock, similar to 4 fund portfolio). I understand the math behind putting lump sum as opposed to dollar cost averaging, but I feel more comfortable averaging in. Given the current market state, My question is, how often and over how long should I do this?
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vineviz
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Re: Dollar Cost Averaging

Post by vineviz »

roccodean wrote: Thu Sep 22, 2022 8:02 am Given the current market state, My question is, how often and over how long should I do this?
1) The "current market state" is irrelevant to this question.

2) There is no answer to this question other than "as quickly as you can".
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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JoeRetire
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Re: Dollar Cost Averaging

Post by JoeRetire »

roccodean wrote: Thu Sep 22, 2022 8:02 amI understand the math behind putting lump sum as opposed to dollar cost averaging, but I feel more comfortable averaging in. Given the current market state, My question is, how often and over how long should I do this?
I would advise a lump sum, but you aren't comfortable with that.
So do whatever makes you comfortable. This isn't a mathematical choice, rather it's emotional - and that means it's personal to you.

Would you be comfortable having all your currently-earning-$0 money invested over a 1 year period? 5 years? 10 years?
Oh, noooooo! I'm so sorry, it's the moops! The correct answer is 'the moops'.
MattB
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Re: Dollar Cost Averaging

Post by MattB »

roccodean wrote: Thu Sep 22, 2022 8:02 am Hello all. I have had money sitting on the sideline and want to put it in play (mix of etfs 60/40 equity/stock, similar to 4 fund portfolio). I understand the math behind putting lump sum as opposed to dollar cost averaging, but I feel more comfortable averaging in. Given the current market state, My question is, how often and over how long should I do this?
There is no best answer to this question. Just pick something you are comfortable with and get to it. I would say anything in the range of now (all at once) to monthly over 6 to 12 months would be appropriate in most cases. Anything longer than that and you might be better off reconsidering your risk tolerance.
MattB
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Re: Dollar Cost Averaging

Post by MattB »

JoeRetire wrote: Thu Sep 22, 2022 8:09 am Would you be comfortable having all your currently-earning-$0 money invested over a 1 year period? 5 years? 10 years?
I agree with your sentiment. But you haven't provided a fair comparison. OP could and should have his money in short-term t-bills or some other interest bearing asset while waiting "on the sidelines," or might even have $300k worth of i-bonds earning 9.6% right now.

OP: How much money are you talking about, in rough terms; how does it compare to your annual income; and is it invested in anything bearing interest? (If not, on the latter, you should get it in short term t-bills.)
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JoMoney
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Re: Dollar Cost Averaging

Post by JoMoney »

Divide it out over whatever period of time you're hoping to "average" your cost basis over.
Spreading it across more than a year or two seems too long to me, but do what you're comfortable with.
Keep in mind that most of the time getting the money in sooner rather than later has resulted in the highest return, and once you've finished averaging in your risk exposure is what you'll have to live with, and if you're willing to hold that risk exposure in the future why not now?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
dbr
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Re: Dollar Cost Averaging

Post by dbr »

roccodean wrote: Thu Sep 22, 2022 8:02 am Hello all. I have had money sitting on the sideline and want to put it in play (mix of etfs 60/40 equity/stock, similar to 4 fund portfolio). I understand the math behind putting lump sum as opposed to dollar cost averaging, but I feel more comfortable averaging in. Given the current market state, My question is, how often and over how long should I do this?
The answer to that is the same as the answer to choosing this approach at all, namely what you are more comfortable with. Only you know what that is.

Note that what the math says is that the longer you take to invest the money the more the results will look like what you had to start with and the less the results will look like where you are going, obviously, and for better or for worse.

I would say one hazard is that you don't want to change your mind by seeing how the first little bit goes because short term results don't predict long term results.
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bertilak
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Re: Dollar Cost Averaging

Post by bertilak »

roccodean wrote: Thu Sep 22, 2022 8:02 am I understand the math behind putting lump sum as opposed to dollar cost averaging, but I feel more comfortable averaging in. Given the current market state, My question is, how often and over how long should I do this?
  1. If you really did understand, you wouldn't feel more comfortable with DCA. The key to comfort is your AA, not your timing.
  2. If you have a reliable insight on a declining market, then your smart play is to wait it out, not to dribble money into a losing proposition. If you don't have the conviction of your ideas, see number 1.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
smooth_rough
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Re: Dollar Cost Averaging

Post by smooth_rough »

If you're asking about frequency, methodically pump in some of your extra money on monthly basis. There's not any particular day of the month that gives any advantage. Dollar amount is whatever works for your budget.
iflyjetzzz
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Re: Dollar Cost Averaging

Post by iflyjetzzz »

I am on the sidelines right now so I definitely don't follow the Boglehead philosophy. I am honoring the saying, 'Don't fight the Fed'. And with the Fed in a tightening cycle, it is almost certain that both stocks and bonds will continue to fall.

So where does one put money? In my case, I've maxed out the 9.62% I bonds at $10K and have my IRAs and savings in 8 week T Bills when are earning ~2.9%.
I'm comfortable earning a bit of money on my cash while waiting for the Fed to finish tightening, as I expect quite a bit more decline in equities and interest rates to continue to rise until the Fed has the inflation rate back down to 2%. That could take quite a while.
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retired@50
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Re: Dollar Cost Averaging

Post by retired@50 »

roccodean wrote: Thu Sep 22, 2022 8:02 am ... My question is, how often and over how long should I do this?
Once or twice per month, lasting no more than 12 months.

Regards,
This is one person's opinion. Nothing more.
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Re: Dollar Cost Averaging

Post by retiringwhen »

vineviz wrote: Thu Sep 22, 2022 8:06 am 2) There is no answer to this question other than "as quickly as you can".
I totally agree here. Setup a plan and execute it as fast as your stomach can handle it and don't be afraid to increase the speed.

If you are in fear of losses, only you will know how fast that is. I have been there twice in my life and tried to be slow and methodical, but in both cases, I eventually realized I had more FOMO (fear of missing out) than fear of losses, so I dumped it all in at once.

This is really a personal risk aversion/management problem that can only be addressed by personal introspection. Some cheerleading from the peanut gallery on BH can help, but you are the solution AND the primary obstacle.
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roccodean
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Re: Dollar Cost Averaging

Post by roccodean »

Thank you for the answers. I’m thinking monthly for 4 months (4 installments).
retiringwhen
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Re: Dollar Cost Averaging

Post by retiringwhen »

roccodean wrote: Thu Sep 22, 2022 10:53 am Thank you for the answers. I’m thinking monthly for 4 months (4 installments).
Not a bad plan to soothe the stomach willies :sharebeer
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Re: Dollar Cost Averaging

Post by invest4 »

vineviz wrote: Thu Sep 22, 2022 8:06 am
roccodean wrote: Thu Sep 22, 2022 8:02 am Given the current market state, My question is, how often and over how long should I do this?
1) The "current market state" is irrelevant to this question.
+1
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Re: Dollar Cost Averaging

Post by ruralavalon »

roccodean wrote: Thu Sep 22, 2022 8:02 am Hello all. I have had money sitting on the sideline and want to put it in play (mix of etfs 60/40 equity/stock, similar to 4 fund portfolio). I understand the math behind putting lump sum as opposed to dollar cost averaging, but I feel more comfortable averaging in. Given the current market state, My question is, how often and over how long should I do this?
I suggest investing in a lump sum now.

If emotionally unable to do that, then consider 50% now in a lump sum and the other 50% at 10% per month for the next 5 months.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Dollar Cost Averaging

Post by arcticpineapplecorp. »

roccodean wrote: Thu Sep 22, 2022 8:02 am Hello all. I have had money sitting on the sideline and want to put it in play (mix of etfs 60/40 equity/stock, similar to 4 fund portfolio). I understand the math behind putting lump sum as opposed to dollar cost averaging, but I feel more comfortable averaging in. Given the current market state, My question is, how often and over how long should I do this?
1. here's an article that states if you want to DCA, don't do so more than 12 months:
http://www.efficientfrontier.com/ef/997/dca.htm

2. have you thought about:
a. what happens if you DCA over the 4 months you've decided and then the market goes down next year (after you've DCA'd)?
b. what's happened to the money you've had in the market already and why should this new money be any different from money already invested?

In other words, by DCAing you're trying to either avoid losing money in a market you believe will continue to go down (fear) or make money buying shares at lower prices (greed) but if it's the former why don't you sell money you currently have invested and if it's the latter then why aren't you borrowing money to invest more than just this "sideline money"?

you're trying to market time. and you're trying to manage your emotional response to an uncertain market. But isn't the market always uncertain?

3. I like what George Sistri says in the last paragraph: "Most investors imagine there are two distinct investing environments; times when the future is clear and investing in stocks is safe and times when the future is unclear and investing in stocks is risky." (source: https://oncoursefp.com//images/Vectors% ... 0final.pdf)

Image

Q: When do I buy?
A: When you have the money.

Q: When do I sell?
A: When you need the money.

If you have money you want to invest, but don't, you're market timing.

4. I'll let Larry Swedroe have the final word:
Here is another way to think about DCA. Assume that staying fully invested in equities is suboptimal, meaning you should sell all your equities and then DCA back into the market. At the next investment period you have some money in the stock market already. While you planned to periodically reinvest in the market, you also determined that staying fully invested is suboptimal. You run into this difficulty: Do you continue to buy equities, sell your existing holdings, or do both? Logicaly, DCA cannot be effective...

While DCA is not an optimal investment strategy, it has value when facing the "lesser of two evils," that is, when an investor simply cannot "take the plunge" and invest all at once for fear of what could happen to the stock market. Fear causes paralysis. If the market rises after they delay, they think, "How can I buy now at even higher prices?" If the market falls, "I can't buy now. That bear market I was afraid of is here." Once deciding not to buy, how do you decide to ever buy again?

The Only Guide You'll Ever Need for the Right Financial Plan, by Larry Swedroe, page 182, appendix B
if you have a plan, just follow it. DCA makes one feel good because if they have some (but not all) invested and the market goes up, they made money (just on what was invested, not all). If the market falls, they feel smart because they didn't lose more money (because it wasn't all invested).

Larry says:
Investors and advisors do not always base decisions on logic or evidence. Emotions, such as fear often play a far greater role in decision making.
But make a plan, write it down and stick to it no matter what.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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BolderBoy
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Re: Dollar Cost Averaging

Post by BolderBoy »

roccodean wrote: Thu Sep 22, 2022 8:02 amMy question is, how often and over how long should I do this?
Often as you can and the research has shown an advantage to getting it all done within 12 months, the shorter time the better.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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bertilak
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Re: Dollar Cost Averaging

Post by bertilak »

BolderBoy wrote: Thu Sep 22, 2022 2:00 pm
roccodean wrote: Thu Sep 22, 2022 8:02 amMy question is, how often and over how long should I do this?
Often as you can and the research has shown an advantage to getting it all done within 12 months, the shorter time the better.
With one day being best.
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Re: Dollar Cost Averaging

Post by Marseille07 »

roccodean wrote: Thu Sep 22, 2022 10:53 am Thank you for the answers. I’m thinking monthly for 4 months (4 installments).
Yes, if you're comfortable with 4 months then that's a good pace, go for it.
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smooth_rough
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Re: Dollar Cost Averaging

Post by smooth_rough »

roccodean wrote: Thu Sep 22, 2022 10:53 am Thank you for the answers. I’m thinking monthly for 4 months (4 installments).
Break it up any way you want. Could be 4 times, once quarterly over 1 year time. The money you don't invest will be decaying against inflation. But who's to say the stock/bond market won't delcine by 10% over the next 12 months?
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Re: Dollar Cost Averaging

Post by gavinsiu »

In my opinon, you should just lump sum it just because it's just easier. If the fund is for retirement and is going to sit in your account for decades any way and in the long run, it probably won't make much of a difference on return. Most people dollar cost average already, it's call your 401K or 403b.

However, if it makes you feel better, DCA over a longer period like a year or so.
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roccodean
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Re: Dollar Cost Averaging

Post by roccodean »

Thank you all. My time horizon is 10 years on this money. I understand lump sum is the "best answer" but I think I am going to do monthly installments over 4 months as this is my comfort level.
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Re: Dollar Cost Averaging

Post by wolf359 »

roccodean wrote: Thu Sep 22, 2022 8:02 am Hello all. I have had money sitting on the sideline and want to put it in play (mix of etfs 60/40 equity/stock, similar to 4 fund portfolio). I understand the math behind putting lump sum as opposed to dollar cost averaging, but I feel more comfortable averaging in. Given the current market state, My question is, how often and over how long should I do this?
The answer is whatever frequency it takes to get invested as quickly as possible.

Something to consider (although you already have found an acceptable answer):

- You seem to be comfortable with asset allocation, and have selected 60/40.

- You also seem to have money already invested in the market (I'm assuming you intend for it to be 60/40.)

- If you're holding your money on the side in cash, that falls into the category of fixed income/cash as an asset class. You're already fully invested, it's just that your asset allocation is off.

According to your investment plan, when that situation occurs, what should you do?
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Re: Dollar Cost Averaging

Post by SmileyFace »

Half today and half next Friday.
:sharebeer
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Re: Dollar Cost Averaging

Post by mj11711 »

How do I buy i-bonds that earn 9.6%?
MattB wrote: Thu Sep 22, 2022 8:24 am
JoeRetire wrote: Thu Sep 22, 2022 8:09 am Would you be comfortable having all your currently-earning-$0 money invested over a 1 year period? 5 years? 10 years?
I agree with your sentiment. But you haven't provided a fair comparison. OP could and should have his money in short-term t-bills or some other interest bearing asset while waiting "on the sidelines," or might even have $300k worth of i-bonds earning 9.6% right now.

OP: How much money are you talking about, in rough terms; how does it compare to your annual income; and is it invested in anything bearing interest? (If not, on the latter, you should get it in short term t-bills.)
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retired@50
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Re: Dollar Cost Averaging

Post by retired@50 »

mj11711 wrote: Fri Sep 23, 2022 8:57 am How do I buy i-bonds that earn 9.6%?
Start here: https://www.treasurydirect.gov/

I bonds are offered by the U.S. Treasury department through their treasury direct website linked above.

They pay a fixed rate (lately that's 0.0%) plus an inflation adjustment rate (that's been the part that currently pays 9.6%) but keep in mind that the inflation adjustment rate "adjusts" every 6 months, so it could go up or down as time goes by.

Regards,
This is one person's opinion. Nothing more.
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Re: Dollar Cost Averaging

Post by HMSVictory »

The fastest DCA timeframe you are comfortable with.

As you the other posters have noted lump sum is going to be your best bet but a quick DCA (say 12 months to invest the entire amount) will be fine.

Don't drag this out over decades.... that is a huge mistake.
Stay the course!
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Re: Dollar Cost Averaging

Post by pennywiser »

Be done by the time FED stops raising interest rate.
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Re: Dollar Cost Averaging

Post by gavinsiu »

roccodean wrote: Fri Sep 23, 2022 6:55 am Thank you all. My time horizon is 10 years on this money. I understand lump sum is the "best answer" but I think I am going to do monthly installments over 4 months as this is my comfort level.

4 months is fine.
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