Comment by regresscheck
6 months ago
It works in a sense of not timing the market. Lump sum beats dollar-cost averaging - because you have more time in market.
6 months ago
It works in a sense of not timing the market. Lump sum beats dollar-cost averaging - because you have more time in market.
Sure, if you have a lump sum to start with.
But dollar-cost-averaging beats saving up a lump sum and then investing.
I think the phrase you're looking for is "automatic investing" or something, not DCA. DCA is usually framed explicitly as a counterpart to lump sum of an existing pile of money
DCA in my understanding is automatically investing a fixed amount at fixed intervals. E.g. $100/month, or whatever. The amount and interval aren't all that critical. The point is to do it automatically and not try to time the market.
Yes I also have heard the advice to dollar cost average a lump sum, not so much in the scenario of a rollover of an existing investment, but when a large amount of cash has become available for some reason. I guess the theory there is you won't risk putting it all in at a market high point. If you average it in over a year in a declining market, you're better off. If you average it in to a rising market you're worse off than if you had invested it all up front. Trying to guess which of these scenarios is going to happen is trying to time the market. I'm sure people have done the research -- intuitively, if you're investing for the long term, better to put it all in at once. But there are probably risk tolerance considerations.
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Depending on the definition of “beating”. On average investing right away is better but the variance of outcomes is higher.
On average across all investors. Not so much if you invested at the peak of dot.com (would have taken decades to break even) or even the covid bubble.