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If you have, say, $100,000 in stocks, how much protection are you really buying by investing an additional $1,000 a month for 12 months, as opposed to $12,000 now? If you assume the slower pace makes sense, shouldn't you pull out 11/12 of your existing investment, and put IT in slowly over the following 11 months?

In general, I agree that using DCA for small amounts doesn't make sense. I would define 'small amounts' as amounts that are less than 20% of your existing portfolio. In your example, $12K is less than 20% of the $100K, so really shouldn't make a difference over the long term.

However, if I were to come into a windfall, as from an inheritance, I would consider using DCA if the windfall were greater than 20% of the existing portfolio. The period of time I would use would depend on what percentage the windfall is. If 20-75%, I might use 6 months. For example, put 20% in immediately and DCA the balance over 6 months.

If 76-100% I might use 12 months. If greater than 100% I might use 18-24 months. These are arbitrary time periods, and the percentages are as well, but this type of strategy would help me sleep better at night, since it would guard against sustaining large losses in a short time period (like going 'all in' on 3/1/00, or 5/1/02).

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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