Comment by dmoy

6 months ago

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

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dmoy

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SoftTalker  6 months ago

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.

  • recursivecaveat  6 months ago

    A year is pretty extreme. If you cut a lump sum into a series of transactions over a couple weeks or even days it is just about the least expensive way to exchange earning potential for reduced volatility. You miss out on like 2 weeks of earnings in exchange for a huge reduction in the chance that you buy in and are immediately down 2% or something.

    • TuringNYC  6 months ago

      You can do both. You can invest the entire amount, but make it short/medium bond heavy on Day 1. As you go thru the year, you rotate more and more of your fixed income allocation towards equity until you reach your target equity %. This is relevant if, for example, you downsized your home or received a retirement payout.