RetireJapan

So I was drinking my coffee, and reading about DCA which I do, but I try to keep some cash just in case.
So we mostly seem to agree DCA is great. (No?)

And it got me thinking, instead of dumping say 200,000 into the s&p in one go during the dip (which many say isn’t the best idea) why not just increase the frequency of DCA, for say the next few weeks/months DURING THE DIP.
This in theory would balance out the buying the dip. Giving us the advantages of buying during the dip but not the risk of a single large payment .
What’s good in the good time, might be better in the bad time.( s&p500)

I can’t find any articles on this, but the idea of buying when others are selling, and just being boring, when everyone is going crazy over something eg Tesla, Bitcoin.
Loads of articles on DCA but not much on doing the same on doing this during the dip. Everyone seems to talk about “The DIp”. Merry

The main problem is that we don't know whether it is a dip or how long it will last. So the sensible thing might be to just carry on swimming normally.

Bubblegun wrote: ↑Sat Feb 05, 2022 8:38 am So I was drinking my coffee, and reading about DCA which I do, but I try to keep some cash just in case.
So we mostly seem to agree DCA is great. (No?)

Nope, it's the other way round. Lump sum investing beats DCA on average, as time in the market beats timing the market.

Obviously there are periods on occasion where DCA beats lump sum investing. Such as this last month if you'd DCA'd over you'd be better off than having lump summed everything at the start of January, because equities are now cheaper. Historically however periods like this are outnumbered by periods where lump sum investing would have won. The reason: because markets trend upwards over time, so it must be the case that lump sum investing will win on average.

TBS wrote: ↑Sat Feb 05, 2022 11:08 am

Bubblegun wrote: ↑Sat Feb 05, 2022 8:38 am So I was drinking my coffee, and reading about DCA which I do, but I try to keep some cash just in case.
So we mostly seem to agree DCA is great. (No?)

Nope, it's the other way round. Lump sum investing beats DCA on average, as time in the market beats timing the market.

Obviously there are periods on occasion where DCA beats lump sum investing. Such as this last month if you'd DCA'd over you'd be better off than having lump summed everything at the start of January, because equities are now cheaper. Historically however periods like this are outnumbered by periods where lump sum investing would have won. The reason: because markets trend upwards over time, so it must be the case that lump sum investing will win on average.

That's interesting as the articles I read, said keeping cash out of the market, waiting for the the market to dip, makes it worse.
As you said,it is time in the market that's the mostimportant. We agree on that!. So I guess they arguing about people who just hold cash for say three or four years, waiting for that dip. If we DCA that money for 3 or 4 years the money would have been in the market longer.
I'm wonder if your LUMP sum investing is a longer period DCA. Instead of every month, it's dropping a lump sum in January every year?

Here is a link to to what I read.
https://www.marketwatch.com/story/buy-t ... 1632245567

RetireJapan wrote: ↑Sat Feb 05, 2022 11:05 am The main problem is that we don't know whether it is a dip or how long it will last. So the sensible thing might be to just carry on swimming normally.

I have to agree, but being sensible is boring, and at times that's hard to do. As you said nobody knows anything, clear as mud, which in a way makes the stock market kinda like a big financial casino, but I think since we say it bounces back, ( we don't know when) it maybe worth increasing that DCA for a few months. I'd rather put some extra in the fund while I can afford it now, rather than let it sit in the bank for years.

Poor strategy?

Sorry TBS, I categorically disagree.

Let's do a test. As you are so committed to the idea of a single lump-sum investment:

We commit you to Y200,000 invested in the S&P 500 VOO at today's price, 412.52.
https://finance.yahoo.com/quote/VOO?p=VOO

We know your Average Price. It's today's price, $412.52 x Today's USDJPY 115.18 = Y47,514.0536
We know how many units you have. It's Y200,000 / Today's USDJPY 115.18 / today's price, $412.52 = 4.209 Units.

05-Feb-2022 Y200,000 / USDJPY 115.18 / price $412.52 = 4.209 Units.

I won't even make you go back to the beginning of January.

And I will put my Y200,000 cash into the S&P500 starting today, Y10,000 today, and Y10,000 on the 5th. day of every month (or the previous working day) for the next 19 months, and then, at the end of January 2024 we compare the result.
https://finance.yahoo.com/quote/VOO?p=VOO

05-Feb-2022 Y10,000 / USDJPY 115.18 / price, 412.52 = 0.2104 Units.
05-Feb-2022 Y190,000 in the bank at 0% Interest.
05-Feb-2022 Total 0.2104 Units

05-Mar-2022 Y10,000 / USDJPY
05-Mar-2022 Y180,000 in the bank at 0% Interest.
05-Mar-2022 Total 0.2104 Units +


And a third scenario:

My Alter Ego will one day decide to invest another Y200,000 Lump-Sum at the time of my choosing, sometime between now and the end of January 2024. Until then, the Y200,000 of dry powder sits in the bank at 0% Interest...



Or how about eMAXIS Slim全世界株式(オール･カントリー), as this is so popular...
https://finance.yahoo.co.jp/quote/0331418A

We commit you to Y200,000 invested in the eMaxis at today's price, Y16,093.
We know your Average Price. It's today's price, Y16,093
We know how many units you have. It's Y200,000 / today's price, 16,093 = 12.42776 Units.

05-Feb-2022 Y200,000 / price Y16,093 = 12.42776 Units.

I won't even make you go back to the beginning of January.

And I will put my Y200,000 cash into the eMaxis starting today, Y10,000 today, and Y10,000 on the 5th. day of every month (or the previous working day) for the next 19 months, and then, at the end of January 2024 we compare the result.

05-Feb-2022 Y10,000 / price Y16,093 = 0.62138 Units.
05-Feb-2022 Y190,000 in the bank at 0% Interest.
05-Feb-2022 Total 0.62138 Units

05-Mar-2022 Y10,000 / price
05-Mar-2022 Y180,000 in the bank at 0% Interest.
05-Mar-2022 Total 0.62138 Units +


And again, the third scenario:

My Alter Ego will one day decide to invest another Y200,000 Lump-Sum at the time of my choosing, sometime between now and the end of January 2024. Until then, the Y200,000 of dry powder sits in the bank at 0% Interest...

Watch This Space...

Bubblegun wrote: ↑Sat Feb 05, 2022 2:07 pm That's interesting as the articles I read, said keeping cash out of the market, waiting for the the market to dip, makes it worse.
As you said,it is time in the market that's the mostimportant. We agree on that!. So I guess they arguing about people who just hold cash for say three or four years, waiting for that dip. If we DCA that money for 3 or 4 years the money would have been in the market longer.
I'm wonder if your LUMP sum investing is a longer period DCA. Instead of every month, it's dropping a lump sum in January every year?

Here is a link to to what I read.
https://www.marketwatch.com/story/buy-t ... 1632245567

...

but I think since we say it bounces back, ( we don't know when) it maybe worth increasing that DCA for a few months. I'd rather put some extra in the fund while I can afford it now, rather than let it sit in the bank for years.

Poor strategy?

Yeap we need to clarify. That article is written from the perspective of having zero cash available to invest at day zero, then compares investing monthly as income comes in (DCA) versus holding income back and trying to time the market. Yes agreed, in this scenario the former is best.

The context of my post was that if you have some savings already at day zero that you have earmarked for investing at some point, which from your OP sounds like your situation, then dropping this into the market at day zero (lump sum investment) historically beats a DCA strategy, as the former results in more time in the market.


@Tkydon
Sorry, but rather than focusing on a single time window, a sensible analysis would be to compare lump sum vs DCA investing over all historical 20 month investment windows. Lump sum investments would outperform DCA over the majority of such time windows.

At the risk of going over old ground from other threads, you may believe you can time the market and you might to be right, either due to your skill or your plain luck. However advocating strategies to try and time the market and beat it is poor advice to offer out on a forum like this. You effectively said as much in one of your previous posts. It is impossible for everyone to be able to beat the market, and the majority of people who try will lose out compared to passive index investors just staying in the market for as long as possible.

It may be important to differentiate between regular investing (tsumitate-style) and DCA.

Regular investing is good and very sensible. It implies, to me, that we are investing as much as we can, every month (or whatever period used). It is like lump-sum investing every month with all available capital. The investor does not wait for a dip or try and pick up assets when their price is low.

DCA, on the other hand, usually means that we have a larger amount that we choose to divide up and invest gradually in order to reduce the risk of buying when assets (funds, ETFs, stocks) are at a high price.

The data TBS referenced says that most of the time, lump sum beats DCA due to the time out of the market.
If you have 200,000 to invest, most times, investing it today is the best option. But if you think you will kick yourself if the price of the S&P500 fund or whatever goes down again next week, sure, divide it up a little.Don't wait too long, though. As discussed before, in 10 years or 20 years from now, the difference will probably be minimal.

One other point is that with the mutual funds that many on this forum buy (except those from the U.S), there are a few days lag before the funds are purchased anyway. That makes it very difficult to try and time your purchases.

beanhead wrote: ↑Sun Feb 06, 2022 4:07 am It may be important to differentiate between regular investing (tsumitate-style) and DCA.

I00% agree

Tkydon wrote: ↑Sat Feb 05, 2022 2:44 pm Sorry TBS, I categorically disagree.

I strongly disagree with your conclusions.

I would read through this report from Vanguard -> https://static.twentyoverten.com/5980d1 ... nguard.pdf

Tsumiate is not DCA. Lumpsum is a statistically better approach.

TBS wrote: ↑Sat Feb 05, 2022 4:59 pm @Tkydon
Sorry, but rather than focusing on a single time window, a sensible analysis would be to compare lump sum vs DCA investing over all historical 20 month investment windows. Lump sum investments would outperform DCA over the majority of such time windows.

At the risk of going over old ground from other threads, you may believe you can time the market and you might to be right, either due to your skill or your plain luck. However advocating strategies to try and time the market and beat it is poor advice to offer out on a forum like this. You effectively said as much in one of your previous posts. It is impossible for everyone to be able to beat the market, and the majority of people who try will lose out compared to passive index investors just staying in the market for as long as possible.

Really, but we're not in the majority of those such time windows. We are here and now. I'm with Ben Graham...

Can't argue with statistics.

One Shot - January 2000 vs 20 months Jan 2000 to August 2002...
One Shot - January 2008 vs 20 months Jan 2008 to August 2009...

But you get to make one Lump Sum investment... When do you make it. You said it's not smart to try to time the market, so make it now.
I disagree.

Otherwise you are Dollar Cost Averaging, whether you make two contributions or 20, whether from your bank account or your income, doesn't matter....

When you add to your position at different prices, you have Averaged the Price, by definition...




Time will tell...

Dollar Cost Averaging just means you buy at different prices over a longer period of time and therefore achieve a better average price over all your purchases than you would have achieved making a single purchase.

https://www.investopedia.com/terms/d/do ... 0intervals.

Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.

Dollar-cost averaging aims to avoid making the mistake of making one lump-sum investment that is poorly timed with regard to asset pricing.

Tsumitate enforces a discipline of Constant Dollar Value DCA over a long period of time.

Not only does it reduce the risk, but there is a huge psychological difference for many to DCA, as many people are risk adverse.

Indeed sometimes DCA may yield a higher price than the bottom... But that is what hedging does; it potentially reduces the return as an insurance against a loss.

Saving the money regularly is the important discipline, but there is no problem in judging assets too highly priced compared to the intrinsic value, or the price you would like to buy them for, and not make a Lump Sum Investment now, but either sit on your hands until the price is more to your liking, or buy a little bit at a time to hopefully achieve a lower price.

And right now, I believe the market to be grossly over-priced, and so I will wait until pricing more to my liking comes back around.

At the end of the day, the final goal is measured by the total number of units you own. The price just tells you how much someone may be willing to pay to buy those units off you.

I am just saying that I think it is Very Risky to make a One-Time Lump-Sum Investment now. I think, rather than being low, the market is still much to high, and I will wait for the Manic Depressive Mr. Market to quote me a price that I like.

I may prove myself wrong by running this experiment for two years