Skip to main content
No. of Recommendations: 0

Great question! the reality is - anyone who has the option of DCA, IMHO should not!

If some one is putting away so much a paycheck, great! But that is not dollar cost averaging. Putting a lump some in based on some preset time criteria is timing the market - AND USING BAD INDICATORS. It is not even an argument about whether timing the market is bad. The argument is timing the market based on pulling a time out of the hat is BAD.

Just thought I would reference the first page of that very article you cite.

However, "this decision [DCA] is not supported by any rational decision making (model)," Constantinides says. In fact, the research shows that most of the time you'll end up with more money if you invest a lump sum all at once.

Consider the work done by Gregory Singer, director of research, and Ted Mann, analyst, both with Bernstein Global Wealth Management. They calculated the results of investing in the Standard & Poor's 500 using both lump sum investing, as well as dollar-cost averaging, for all the rolling 12-month periods between 1926 and November 2008.

The average yearly return for the "lump sum" approach, or investing everything at the beginning of the year, was 12 percent. That compares with 8 percent under dollar-cost averaging.

Of all the Pro DCA studies I have read, typically the numbers can never be verified or there's a glaring flaw in the statistics. Mostly - just clearly using the data that supports the position and not the whole data set. Scanning and then picking a DCA time investment schedule on the best days of the years and then comparing to the worst day of the year to put in a lump sum. Or Just putting in the money and then the next day is the crash, never, to your concern, what if just after puting in the DCA money, it crashes.

Your best bet is working on the allocation and deciding, if it is at a price you will pay get in (more for individual stocks than ETFs but still have some relevance as you mention short term bonds which is the percentage discuss we won't start here)

For some cases, suggest:
Decide on the allocation, then decide how you can hedge that allocation for the short term downside protection. Specifically in the areas that concern you.

Put option on SPY, or other ETFs (or call option on the inverse)

Then overtime, slowly decrease the hedge amount.
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.