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<<Yes, in a reverse market scenario, where the market goes up after the one-time investment, I would be sacrificing profits. However, I would only be sacrificing profits on the dollars going in, as my original portfolio would still be earning those profits.

2old

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Adovocates of lump sum investing suugest that stocks tend to go up, so the smart move should be to invest everything you have ASAP on the theory that that should maximize your returns.


The problem with that theory is that stock prices tend to be erratic, which means that there is a high dispersion around the mean or average cost of stock. Whatever the actual value might be, stock prices are usually going to vary quite a bit around that theoretical value.


Because of that, my own theory is that the smart move may be to use dollar cost averaging to give you the benefit of diversification in your investment. Not diversification between stocks, but diversification of your purchases over time. By using that kind of diversification, you should be able to come closer to that real core value of the stock price, rather than getting a random higher or lower value through a one shot purchase.


There may be occasions where you are satisfied that you are getting a real buy on a stock price. If so, fine. Go ahead and dumpt your money in all at once. But where prices are more ambiguous, I favor the DCA approach myself.


But that's my bias. While I think it's reasonable, other are certainly welcome to their own approaches to investing.




Seattle Pioneer
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