Simple Q&A - NISA

[TBS]

Vanguard has a great study, it's been linked in this forum a few times. https://www.google.com/url?sa=t&source= ... GhqX28B0ce

Statically speaking LSI beat DCA the majority of the time. The future is unknowable, so LSI is the "on paper" rational choice. However, if it's too much stress, then DCA is right for you.

Yes, it has. Though I don't really buy the argument that DCA'ing is a rational choice to counter the stress of market volatility*.

People need to understand that volatility is inevitable concomitant of stock market investing. Numerically speaking, there is no difference between a bear market wiping 50% off the value of a portfolio two months after a lump sum investment, or two months after a DCA period finishes. In both cases, you end up 50% poorer from a position where you previously were.

Yes, DCA lowers the consequence of any downwards volatility over the initial period. But after that, the game is the same.

Rationally investors should instead be accepting upfront that a) volatility is an unavoidable hazard, and b) that it needs to be managed appropriately by choosing an equity investment percentage that suits their circumstances and risk tolerance.

The equity ratio can increase over time, of course. But conflating this point with DCA means many new investors aren't thinking properly about the amount of volatility they can sustain, I feel. Certainly a DCA-style ramp up of exposure from low to max volatility over 6 months to a year is probably too fast a rate for many new or uneasy investors.


*Note I'm not saying this what you believe, @TokyoBoglehead, just rambling on from my soapbox

[TokyoBoglehead]

Vanguard has a great study, it's been linked in this forum a few times. https://www.google.com/url?sa=t&source= ... GhqX28B0ce

Statically speaking LSI beat DCA the majority of the time. The future is unknowable, so LSI is the "on paper" rational choice. However, if it's too much stress, then DCA is right for you.

Yes, it has. Though I don't really buy the argument that DCA'ing is a rational choice to counter the stress of market volatility*.

People need to understand that volatility is inevitable concomitant of stock market investing. Numerically speaking, there is no difference between a bear market wiping 50% off the value of a portfolio two months after a lump sum investment, or two months after a DCA period finishes. In both cases, you end up 50% poorer from a position where you previously were.

Yes, DCA lowers the consequence of any downwards volatility over the initial period. But after that, the game is the same.

Rationally investors should instead be accepting upfront that a) volatility is an unavoidable hazard, and b) that it needs to be managed appropriately by choosing an equity investment percentage that suits their circumstances and risk tolerance.

The equity ratio can increase over time, of course. But conflating this point with DCA means many new investors aren't thinking properly about the amount of volatility they can sustain, I feel. Certainly a DCA-style ramp up of exposure from low to max volatility over 6 months to a year is probably too fast a rate for many new or uneasy investors.


*Note I'm not saying this what you believe, @TokyoBoglehead, just rambling on from my soapbox

I think it's important to understand the statistical and mathematical realities are separate from the psychological issues.

I had a colleague who waited far to long to invest, as he didn't know the best method (decision paralysis).I suggested do both, half LSI / half DCA. That helped get over the hump.

People aren't perfectly rational. 50%+ of a decent financial advisors job is hand-holding and talking down clients from rash emotional decisions.

If DCA makes someone sleep better at night, that should weigh into the decision.

[Bubblegun]

While I see why LSI works most of the time, probably because most of the time the markets go up. So there would be a logical reason for LSI would indeed outperform DCA.
HOWEVER, it is not universal.

Risk of loss and emotional considerations
Even though LSI’s average outperformance and risk-adjusted returns have been greater than those of DCA, risk-averse investors may be less concerned about averages than they are about worst-case scenarios, as well as the potential feelings of regret that would occur if a lump-sum investment were made immediately prior to a market decline. These concerns are not unreasonable. We found that DCA performed better during market downturns, so DCA may be a logical alternative for investors who prefer some short-term downside protection.

So I am wondering if we this year would have been in the a worse case situation. Dropping say 4 million yen in January to see it walk off a cliff.Where as now, over this year, the larger amounts put in every week "might" perform better.

Clearly, if markets are trending upward, it’s logical to implement a strategic asset allocation as soon as possible because it should offer a higher long-run expected return than cash.

So in what situation does DCA outperform LSI? and over which period of time? Well according the the study it appears that DCA DURING THE DOWNDOWN outperforms the LSI. I also agree, the sums we might be talking about aren't exactly life changing. and I think this guy brings up great points.
https://youtu.be/BKPUPWOIs4A

[Tkydon]

https://www.schwab.com/learn/story/does ... iming-work

[TBS]

https://www.schwab.com/learn/story/does ... iming-work

As one of the forum's more vocal advocates for trying to time the market, it is surprising that you posted this.

[Tkydon]

https://www.hartfordfunds.com/practice- ... rkets.html

But, if you put these two together (Bear Market Rally):

3/24/2000–9/21/2001 -36.77% 546 Days
1/4/2002–10/9/2002 -33.75% 278 Days

then

Combined 3/24/2000–10/9/2002 -47.37% 929 Days

[TokyoBoglehead]

https://www.schwab.com/learn/story/does ... iming-work

As one of the forum's more vocal advocates for trying to time the market, it is surprising that you posted this.

This was actual a great summary. We should have a forum bot that responds with this anytime the topic comes up!

In brief
1.Given the difficulty of timing the market, the most realistic strategy for the majority of investors would be to invest in stocks immediately.

2, Procrastination can be worse than bad timing. Long term, it's almost always better to invest in stocks—even at the worst time each year—than not to invest at all.

3. Dollar-cost averaging is a good plan if you're prone to regret after a large investment has a short-term drop, or if you like the discipline of investing small amounts as you earn them.

[NobbyTokyo]

hi, I have a probably newbie question about Nisa on SBI. I recently bought some units in a tracker fund and it seems that I didn't check a particular box and the investment ended up in my regular tax-paying broker account when I wanted it in my Nisa account. Can I move that investment into my Nisa account, which would still be within my ¥1.2m allowance for this year? It probably says whether it is possible or not somewhere on the site, but the jungle of Japanese small print is daunting! Any comments would be appreciated

[Moneymatters]

hi, I have a probably newbie question about Nisa on SBI. I recently bought some units in a tracker fund and it seems that I didn't check a particular box and the investment ended up in my regular tax-paying broker account when I wanted it in my Nisa account. Can I move that investment into my Nisa account, which would still be within my ¥1.2m allowance for this year? It probably says whether it is possible or not somewhere on the site, but the jungle of Japanese small print is daunting! Any comments would be appreciated

The short answer is “No” (you’ll need to sell then rebuy in the NISA account.)

The long answer is “Nooooooooooooo”. Or in Japanese..

“ 特定口座や一般口座で今まで保有している商品を移管できない
「今まで保有していた株式等をNISA口座に移管して非課税にしよう」と考える方もいるかもしれません。ですが、残念ながらそれはできません。すでに証券会社の特定口座や一般口座で株や投資信託を購入していた場合、それをNISA口座に移管して決済することはできないのです。あくまでNISA口座はほかの特定口座や一般口座とは別であり、NISA口座で新たに購入する必要があります。”

[NobbyTokyo]

Thanks! I thoiught that might be the case. Thanks for finding the Japanese bit, too