Comments on: Dollar-Cost Averaging: For Higher Return or for Lower Risk? http://www.thesunsfinancialdiary.com/investing/dollar-cost-averaging-for-higher-return-or-for-lower-risk/ Fri, 03 Feb 2012 17:42:24 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Sunhttp://www.thesunsfinancialdiary.com/investing/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-42827 Sun Wed, 11 Jun 2008 01:38:54 +0000 http://www.thesunsfinancialdiary.com/2007/01/12/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-42827 Chad: Right, DCA and index funds are slow, steady ways to build up investments. Though it seems DCA may not be such a good idea in the long-term, I am still using it to buy most of my funds. Then again, I also have a lot of active funds that I hope can generate better returns :) Chad: Right, DCA and index funds are slow, steady ways to build up investments. Though it seems DCA may not be such a good idea in the long-term, I am still using it to buy most of my funds. Then again, I also have a lot of active funds that I hope can generate better returns :)

]]> By: Chad @ Sentient Moneyhttp://www.thesunsfinancialdiary.com/investing/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-42823 Chad @ Sentient Money Tue, 10 Jun 2008 14:33:14 +0000 http://www.thesunsfinancialdiary.com/2007/01/12/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-42823 I couldn't agree more. I don't use DCA and never will. I also don't use index funs or many funds at all. DCA and index funds are fine if you want to retire when you are 65, but I would prefer to have some real health left and shot for 10-15 years earlier. I couldn’t agree more. I don’t use DCA and never will. I also don’t use index funs or many funds at all. DCA and index funds are fine if you want to retire when you are 65, but I would prefer to have some real health left and shot for 10-15 years earlier.

]]> By: The Dividend Guyhttp://www.thesunsfinancialdiary.com/investing/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-24705 The Dividend Guy Fri, 05 Oct 2007 12:59:22 +0000 http://www.thesunsfinancialdiary.com/2007/01/12/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-24705 Sun - thanks for the analysis. I appreciate seeing this and learned some things from it.The only other comment I would make is that often, we as investors try to over-analyze things and complicate things. At the end of the day, what will matter is that people are invested in a diversified portfolio and make regular contributions as money comes available. If faced with the choice of LS vs. DCA, then LS wins, but to keep things simple and easy, often a regular investment plan is just easier to do.Thanks again for the analysis!The Dividend Guy Sun – thanks for the analysis. I appreciate seeing this and learned some things from it.

The only other comment I would make is that often, we as investors try to over-analyze things and complicate things. At the end of the day, what will matter is that people are invested in a diversified portfolio and make regular contributions as money comes available. If faced with the choice of LS vs. DCA, then LS wins, but to keep things simple and easy, often a regular investment plan is just easier to do.

Thanks again for the analysis!

The Dividend Guy

]]> By: Inclementhttp://www.thesunsfinancialdiary.com/investing/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-4230 Inclement Thu, 15 Mar 2007 04:00:15 +0000 http://www.thesunsfinancialdiary.com/2007/01/12/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-4230 This quote from the footnote of the Knight, Mandell, 1993 paper cited above helped me:<blockquote>Thus, we take care not to confuse Dollar Cost Averaging with periodic investing where the investor puts aside a regular amount of savings each period to invest in risky securities. Periodic investment of savings as funds become available is a Buy and Hold strategy and has the additional positive attribute of encouraging habitual savings, a characteristic not shared by Dollar Cost Averaging.</blockquote>They define and analyze DCA as having all assets (say $100K) in a risk-less investment (T-bills) up front, and investing only small amounts each month for a holding period of 10 years until they reach their asset allocation target.That's not the same as <em>NOT</em> having all $100K up front and buying as you go. The paper says that Optimal Rebalancing produces the best results. You can achieve this with periodic investment by buying each month enough stocks, bonds, and cash so as to maintain your desired asset allocation (which is based on the risk you can tolerate). Since stocks will (most of the time) outpace bonds and cash, you may end up buying more of the latter each month.That's periodic investing + rebalancing in the real world. This quote from the footnote of the Knight, Mandell, 1993 paper cited above helped me:

Thus, we take care not to confuse Dollar Cost Averaging with periodic investing where the
investor puts aside a regular amount of savings each period to invest in risky securities. Periodic
investment of savings as funds become available is a Buy and Hold strategy and has the
additional positive attribute of encouraging habitual savings, a characteristic not shared by
Dollar Cost Averaging.

They define and analyze DCA as having all assets (say $100K) in a risk-less investment (T-bills) up front, and investing only small amounts each month for a holding period of 10 years until they reach their asset allocation target.

That’s not the same as NOT having all $100K up front and buying as you go. The paper says that Optimal Rebalancing produces the best results. You can achieve this with periodic investment by buying each month enough stocks, bonds, and cash so as to maintain your desired asset allocation (which is based on the risk you can tolerate). Since stocks will (most of the time) outpace bonds and cash, you may end up buying more of the latter each month.

That’s periodic investing + rebalancing in the real world.

]]> By: The Sunhttp://www.thesunsfinancialdiary.com/investing/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-3454 The Sun Wed, 28 Feb 2007 22:28:05 +0000 http://www.thesunsfinancialdiary.com/2007/01/12/dollar-cost-averaging-for-higher-return-or-for-lower-risk/#comment-3454 Actually, as you said, the conclusion is to start investing as early as possible. The amount I used in the analysis is quite small ($100 a month, or $1200 a year), so it won't become a problem for people who want to invest. And in this case, $1200 shouldn't an amount that too difficult to come up with. If the fund is available, then making a lump sum investment at the beginning is better than putting $100 every month. On the other hand, if the money isn't available, then using DCA is a better choice than saving the money to invest. Of course, a lump sum at the beginning of the year works better in up markets, as we saw in the past 20 years. For the long-term, we should invest as early as we can and as much as we can. Actually, as you said, the conclusion is to start investing as early as possible. The amount I used in the analysis is quite small ($100 a month, or $1200 a year), so it won’t become a problem for people who want to invest. And in this case, $1200 shouldn’t an amount that too difficult to come up with. If the fund is available, then making a lump sum investment at the beginning is better than putting $100 every month. On the other hand, if the money isn’t available, then using DCA is a better choice than saving the money to invest. Of course, a lump sum at the beginning of the year works better in up markets, as we saw in the past 20 years. For the long-term, we should invest as early as we can and as much as we can.

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