Ben, i’m not sure what point you’re trying to make regarding DCA. Dollar cost averaging is simply buying a target security at periodic times regardless of price to reduce volatility impact on purchasing that security. The source of funds whether it’s from a paycheck or from a lump sum inheritance makes no difference if you are dividing your purchases of a target security overtime then you are dollar cost averaging. Yes, I agree it may indicate some thing about the risk tolerance of the investor but that’s all.
Love this article. Thanks Ben! Your thoughts on DCA hit home with me. See the two different scenarios I list below.
1. I used to DCA on a recurring schedule by buying index funds/ETFs over several years via a paycheck deduction into my 401k. DCAing into an index fund like this over a longer time period is less risky because it helps mute the short term market dips and highs, while taking advantage of the long term market trends.
2. When buying individual stocks, I DCA into them in multiple tranches at specific buy points that I identify based on my technical analysis of their stock price charts...this reduces the risk of buying all-in at the high, brings down my average price and maximizes my future gain. Of course the stock can run away after 1-2 tranche purchases and then I have to wait patiently for the next dip which almost always happens.
Ben, I understand your point number 1 but not the message. OK dollar cost averaging with every pay period can be classified and a form of lumpsum investing but isn't the purpose of dollar cost averaging to avoid some of the pitfalls of your point number 4, don't stock pick. Dollar cost averaging is at least a method to invest that avoids trying to time the market and has you investing for the long haul. If you want to make this point about dollar cost averaging what is the alternative? Have a very conservative investment portfolio and just sock money into it as you can spare it? The lesson of dollar cost averaging is that it encourages regular savings and avoids the idea that you can market time. Why highlight this as a misconception? Please give me more insight.
Ben, i’m not sure what point you’re trying to make regarding DCA. Dollar cost averaging is simply buying a target security at periodic times regardless of price to reduce volatility impact on purchasing that security. The source of funds whether it’s from a paycheck or from a lump sum inheritance makes no difference if you are dividing your purchases of a target security overtime then you are dollar cost averaging. Yes, I agree it may indicate some thing about the risk tolerance of the investor but that’s all.
Will do both and you have a great one as well.
Love this article. Thanks Ben! Your thoughts on DCA hit home with me. See the two different scenarios I list below.
1. I used to DCA on a recurring schedule by buying index funds/ETFs over several years via a paycheck deduction into my 401k. DCAing into an index fund like this over a longer time period is less risky because it helps mute the short term market dips and highs, while taking advantage of the long term market trends.
2. When buying individual stocks, I DCA into them in multiple tranches at specific buy points that I identify based on my technical analysis of their stock price charts...this reduces the risk of buying all-in at the high, brings down my average price and maximizes my future gain. Of course the stock can run away after 1-2 tranche purchases and then I have to wait patiently for the next dip which almost always happens.
DCA does not work for short term trading.
Ben, I understand your point number 1 but not the message. OK dollar cost averaging with every pay period can be classified and a form of lumpsum investing but isn't the purpose of dollar cost averaging to avoid some of the pitfalls of your point number 4, don't stock pick. Dollar cost averaging is at least a method to invest that avoids trying to time the market and has you investing for the long haul. If you want to make this point about dollar cost averaging what is the alternative? Have a very conservative investment portfolio and just sock money into it as you can spare it? The lesson of dollar cost averaging is that it encourages regular savings and avoids the idea that you can market time. Why highlight this as a misconception? Please give me more insight.