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Author: kevin1978 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Dollar Cost Averaging Mistakes? Date: 4/25/2006 6:00 AM
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In line with the Dollar Cost Averaging approach, I have been making regular contributions to my Roth IRA twice a month for about a year now. I figured twice a month of $166 is better than only once of $333 to get a represent a better DCA model.

However, the Windsor II Fund made over 10% the past 12 months, but I made only a little over 4% due to the "unlucky" days that my DCA purchases were made. Are there historically any "good" days in the month to make purchases? Just trying to not let unlucky market "timing" of my automatic purchases affect my returns.


Thanks,
Kevin
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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51386 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 4/25/2006 9:39 AM
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However, the Windsor II Fund made over 10% the past 12 months, but I made only a little over 4% due to the "unlucky" days that my DCA purchases were made. Are there historically any "good" days in the month to make purchases? Just trying to not let unlucky market "timing" of my automatic purchases affect my returns.

First, I don't believe making contributions twice a month will help or hurt your returns to any significant amount. Unless your investments are taken out automatically, I would just go to once a month.

Second, I think your micro managing your investment. Yes, you should evaluate your investments to make sure they still meet your needs, but you shouldn't sweat which day you put your money in.

I have to assume that you'll be putting money in for years if not decades. This one year will be but a tiny blip in the end.

-murray


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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51387 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 4/25/2006 9:44 AM
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It may not be "unlucky" days.

If you start with, for example, $10,000 at the beginning of the year th000en you make the yearly return.

If you start with $X at the beginning of the year, and DCA until you have $10,000 at the end, different parts of your money have been in for different times, and your return will differ from the yearly return. In this case, to determine your return you need to calculate the return for each of the periods - that is, every time you put money in. That is the only accurate comparison.

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51392 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 4/25/2006 10:06 AM
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I agree with Joel - wow ;)

With a return of 10% in a year, if you despited throughout the year in random days, on average you should earn 5% total (because your money, on average, was invested only half the year). 4% is a little bit unlucky, but not particularly.

And no, there's no best day or anything.

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51397 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 4/25/2006 12:04 PM
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However, the Windsor II Fund made over 10% the past 12 months, but I made only a little over 4% due to the "unlucky" days that my DCA purchases were made. Are there historically any "good" days in the month to make purchases? Just trying to not let unlucky market "timing" of my automatic purchases affect my returns.


Thanks,
Kevin


Avoid the distribution date. If you can get Vanguard to tell you when that will be.

The price is highest on the distribution date, falls the day after (the reinvestment date), and usually falls again the payable date.

I had fantasies of graphing the price for my mutual fund, overlapping, to see which date was the best. But my spreadsheet skills for current spreadsheets are minimal and I couldn't figure out how to do that.


Vickifool

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51398 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 4/25/2006 1:20 PM
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Avoid the distribution date. If you can get Vanguard to tell you when that will be.

But, while a $10 fund may fall to $9 on the distribution date, you also get a $1 distribution per share. You're not really losing anything.

At least that's the case on a tax advantaged account.

In a taxable account you would have to pay taxes on the distribution, so its better to wait until just afterwards.

That is true, but is generally a once per year phenomenon, not a monthly one like the OP was talking about.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51413 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 4/26/2006 12:03 AM
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The price is highest on the distribution date, falls the day after (the reinvestment date), and usually falls again the payable date.

The Windsor II fund distributes semi-annually. The price does normally drop on the day after the distribution. A drop on the payable date is not so predictable.

Debra

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51567 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 5/4/2006 9:35 PM
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The Windsor II fund distributes semi-annually. The price does normally drop on the day after the distribution. A drop on the payable date is not so predictable.

I'm late to this game, but I have to chime in. The drop you are describing is irrelevant for a tax-advantaged account. The amount of the distribution/share exactly equals the decrease in price/share. Therefore, there is no loss to the shareholder if taxes are not a factor.

Acme

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Author: LeftCoastJayhawk One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51620 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 5/8/2006 3:01 PM
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"In a taxable account you would have to pay taxes on the distribution, so its better to wait until just afterwards.

That is true, but is generally a once per year phenomenon, not a monthly one like the OP was talking about."

Oh how I wish that distributions were no big deal. But last Friday, Fidelity did a susprise 18.33% distribution of Fidelity Magellan! An unbelievably large distribution which DOES cause me a big, unplanned tax problem. We have about $65K in Magellan in an after tax account (have NOT reinvested dividends for many years, but did not want to sell for some time as it was tracking close to the SP500 and I did not want to pay cap gains taxes yet).

This huge, and susprise distribution has really screwed up my plans for rebalancing some other stock, and will likely put us over the AGI limits on the college tax credits I was planning for this year. I am royally P****'d at Fidelity right now.

--Leftcoastjayhawk

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51621 of 76237
Subject: Re: Dollar Cost Averaging Mistakes? Date: 5/8/2006 3:57 PM
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>> Oh how I wish that distributions were no big deal. But last Friday, Fidelity did a susprise 18.33% distribution of Fidelity Magellan! An unbelievably large distribution which DOES cause me a big, unplanned tax problem. <<

Which is why I would only use individual stocks, ETFs and tax-managed stock mutual funds in a taxable account.

#29

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