No. of Recommendations: 0
To clarify your quote, Bernstein found DCA to be a losing strategy vs lump sum investing. His words:

"I looked at the 523 rolling 6-month periods within the 44 years 1953-1996. Lump-summing came out only 1.11% better on average than DCA-6 (per use of DCA-6, not per year). DCA-6 came out better than lump-summing in 199 of the 523 cases. "

He goes on to say that this doesn't matter, since if you give up the lump sum upside, your investment will be less risky in the short term. Well, it matters to me. If I'm worried about equity risk, I'll diversify into other asset classes.

I like Bernstein, but this is a weak article. He's relying too heavily on historical patterns, poking around with the numbers until he finds a time period where DCA, while still inferior to lump summing, isn't *that* bad (he rejects 12 month and 36 month DCA). And he makes statements like:

"DCA is not for people who consider themselves competent market-timers...the DCA choice is for people who fear that the market may drop drastically at any time, but do not feel competent to judge whether that is more or less likely now than at some other time. "

So let me get this straight...DCA is for people that can't predict what the market will do, and yet who have a premonition the market is going to crash sometime in the next six months (his DCA timeframe). These investors have crystal balls, but they're a little cloudy, I guess.

I still don't buy DCA. I invest the max amount I can each month after paying my expenses.


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