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Ok...so people who don't follow DCA presumably stopped investing during 2001 and 2002 for some reason? I just kept investing all I could.

I DCA, but that is because it is part of my "systematic investing" plan, investing as money is available. I also use "systematic saving" to build up a money market account to have the full Roth IRA contribution waiting and willing to go for when I can next contribute to a Roth IRA (i.e., I am right now sitting on the $3,500 that I can contribute to the Tax Year 2004 Roth IRA contribution come January, 2004).

There are some good reasons to DCA, but maximizing the returns on investment isn't one of them:

1. By investing in "bite size chunks", one can become acclimated to normal market volatility. This seems reasonable for those who previously didn't have exposure to equities and how I first got my exposure to equities.

2. A systematic savings apprach: invest a fixed amount of money each payday. That is what I do with my 403(b) and taxable investments. (Sometimes if I have extra money or a windfall, I'll add those to my taxable investments.) By making investing routine and having the money automatically removed from my accounts and put where it will get invested, it gets done, which is far more valuable than spending the money on perishables and being left with only good intentions at the end of the month.

3. A risk mitigation approach: by making purchases spaced out over time, one reduces the risk that the entire amount will be invested when prices are high. This might be a reasonable approach if one is making a major portfolio change.

I remember reading that, as an income maximizing strategy, DCA falls flat: about 60% of the time, lump sum investing into the stock market (if one is suddenly presented with a lump sum, such as an inheritance) beats DCAing over 6 months--there is a wider spread of returns from lump sum investing (higher highs, but also lower lows), but when one looked at the median returns at the end of those 6 months, the returns from lump-sum has a higher median return.
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