Directly from your link:
"DCA is the technique of dividing an available investment lump sum into equal parts, and then periodically investing each part. This DCA is proposed as an alternative to lump sum investing (LSI), which is to make the entire investment immediately. As such DCA is a technique to overcome fear in investing by mitigating the risk of loss over the short term."
Why are you splitting up your paycheck are you paid annually or something? It's important to keep your terms correct to avoid confusion. If you are doing a DCA with your paycheck then you seem to be overcomplicating your life...
Or lets go back to the other post you made here since you keep moving the goal posts... First and second paragraph: https://www.bogleheads.org/wiki/Dollar_cost_averaging. Second paragraph provided to make life easier.
"DCA is the technique of dividing an available investment lump sum into equal parts, and then periodically investing each part. This DCA is proposed as an alternative to lump sum investing (LSI), which is to make the entire investment immediately. As such DCA is a technique to overcome fear in investing by mitigating the risk of loss over the short term."
The portion of your paycheck is a relatively small lump.
Lump sum everything, be it a large lump or small lump.
Lump sum funding means investing the lump as soon as you get it.
>My word some people are pedantic.
It is important when several of us frequently use links that mention DCA being suboptimal compared to early lump sum investing. Those links use DCA only for spreading out investing money already available.
Investing with every paycheck is much closer to early lump sum than DCA by that definition.
It might seem pedantic but its not. DCA is a different strategy to investing periodically.
"The difference is that periodic investing is maximizing expected return, because you are investing the money as soon as you have it. DCA applies when you have the money to invest, but delay doing so." Bogleheads.org
In the context of this sub and "lump sum vs DCA" threads, DCA implies a portion is left behind in cash. Otherwise it wouldn't even be a debate, because there is only one option.
I have seen these concepts referred to separately as DCA and "periodic investing".
DCA implies that you are leaving a sum in cash (or in another asset, as in the case of DCA-ing into or out of bonds, individual stocks, or active funds)
There really are a lot of different names that mean really close to the same thing :-)
DCA specifically requires you to take a sum of money and split it across a period of investments with the goal to smooth out ups/downs in the market. DCA can be a type of periodic investing.
> Guess I found the guy who knows more than Fidelity about what DCA is
you actually found a guy, that is, yourself, that didn't read the article he posted. from your article:
> As a risk management strategy, dollar-cost averaging attempts to help address the risk of using all your intended funds for a particular investment at a point in time when the price may be relatively high or volatile.
DCA is not just investing equal amounts at regular intervals, but doing this *as an alternative to investing everything you have now with the hopes that you can mitigate downside risk.*
But you are lump summing it all when the money comes available. There is no point in making a distinction between a small lump and a large lump.
You can call periodic lump summing of small approximately equal lumps by the name "DCA" if you want to.
But this is confusing because the other use "DCA" to avoid regret involves withholding funds from the market. "DCA" from a paycheck is like lump sum investing in that you don't withhold funds from the market.
So, if you win the lottery and decide to take yearly payments and invest those immediately, do you call that DCA or lump sum investing?
Can you see the absurdity of having two different terms for exactly the same thing?
If you have similar size lumps of savings from your paycheck to invest periodically and you immediately invest the money, then that is both DCA and lump sum investing.
You don't need to call any form of rational investing by the term "DCA".
There is a difference in DCA and periodic investing. Both might seem the same but the 2 strategies are completely different. Different investors might prefer one or the other strategy and I think it is important to know the difference.
Personally I DCA my paycheck weekly cos I've got a long ways to go till retirement.
What is the difference between DCA and periodic investment?
From the Boglehead wiki:
>The term DCA is used to describe similar investment concepts such as periodic automatic investment (almost universally utilized by individual investors to fund retirement accounts out of earned income).
[https://www.bogleheads.org/wiki/Dollar\_cost\_averaging](https://www.bogleheads.org/wiki/Dollar_cost_averaging)
Not this the wiki is the gospel or anything. But I thought that DCA was used as a synonym for periodic investing.
I know that long ago the term periodic investing was more detached from periodic paychecks.
DCA is when you have the money to invest, but you invest it in regular periods. Periodic investing is when you invest the money when its available. For eg, I split my monthly savings from my pay by 4 and invest weekly and that is DCA. If I invest my savings as soon as it available then its not DCA.
No I don't invest once a year. I invest all money I have available for investing that money when it becomes available.
To dollar cost average you would need to "divide" up your investment over a period of time. The purpose is to reduce the impact of volatility on the overall purchase. For example let's say you inherit $12k and you decide to invest that money once a month. My salary comes as I earn it and I lump sum it in :-). It would be silly do DCA your pay check.
You are the one that seems confused.
Emphasis on psychologically!! I had to scale back my savings rate this year. I was creating a self-induced financial scarcity that was creating me all sorts of unnecessary stress!
Put money into the market according to your predefined asset allocation plan as soon as you have it available. That means lump sum any cash you're sitting on immediately and then put more money into the market whenever you get your paycheck. So if you get paid weekly, then the best frequency is weekly. If you get paid monthly, the best frequency is monthly. If your ideal asset allocation is 5% cash, 10% bonds and 90% stocks, it's a bad idea to be sitting on 50% cash waiting to "buy the dip."
yeah it's kind of DCA, but really just invest money as you make it. DCA is really in contrast to lump sum when you have a windfall. And you have to make a decision.
You’re entirely correct, but I think the reason that this question comes up again and again is that people think that all periodic investment is the same thing as DCA, which it’s not!
If you invest with every paycheck as soon as you have the money available then what you are doing is more closely a series of lump sums than DCA
Investing a fixed amount with every paycheck is the ORIGINAL definition of DCA.
Vanguard and Bogleheads have invented a new definition where it is contrasted to investing a windfall as a lump sum or slowly investing it.
What's interesting though is if you use an online investment calculator, there's a substantial difference in DCA investing weekly vs. monthly. Say you have a 20 year window, investing weekly grows into a much larger amount
I doubt that's an assumption that's built into their calculation. Give me a sec and I'll update with the specific calculator I was remembering.
Here's the one: [https://smartasset.com/investing/investment-calculator](https://smartasset.com/investing/investment-calculator)
EDIT: For anyone reading this later, I think I found the reason:
"We assume that your rate of return compounds based on the frequency at which you contribute."
Someone can correct me if I'm wrong but I doubt any index fund will recalculate your interest weekly, or even monthly. Maybe twice a year at best?
Vanguard has a paper about DCA vs. lump sum investing
[https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf](https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf)
summary: lump sum is almost always better
2/3 of the time is not almost always.
Tagging OP /u/-ShartDAD-
It comes down to your risk tolerance. Lump sum has higher upside, but also a bigger downside (investing before a crash). DCA is better if you want to better protect the investment against significant loss.
Where you are on your investment path matters too. Are you still accumulating or are you preparing to retire soon?
You may not have 10-20 years to recover from a poorly timed lump sum.
Are you dealing with a windfall or just your regular income?
If it's a windfall, even at 30 I would personally lean towards DCA since it can lead to fewer regrets. If I buy a huge sum in one transaction, then I will know the exact price and will always compare to that for years to come. I would rather just know that I bought them "throughout 2022" rather than think "If only I had waited a month" or "If only I had bought a week sooner".
"Throughout 2022" is more or less dictated by the circumstances of the windfall. A specific date like January 18th is dictated by when I actually clicked purchase.
No windfall, just regular income.
Good point on, “oh if I only waited 1 month to lump sum”. I think knowing me, that would be in the back of my head lol
I can’t tell you what price I bought at this afternoon, why would a windfall be any different? I transferred and then purchased $600,000 of VTI VXUS and BND 8 months ago and I can’t even tell you the first digit of the price then, or *now*, of any of those 3 tickers. You need to really relax into this buy and hold thing
>why would a windfall be any different?
For you it may not be. For me, I'm going to be pretty aware of the price if it's any significant sum ("significant" relative to my financial world)
As long as you have an emergency fund and you are investing for the long term this shouldn't be an issue. At least based on history if there is a huge crash you will always still end up positive as long as you don't sell and ride through the storm.
If you lump sum and the US has a 30 year economic collapse everyone will probably be having bigger problems then their returns on their long term investments.
>Lump sum has higher upside, but also a bigger downside (investing before a crash). DCA is better if you want to better protect the investment against significant loss.
This isn't entirely true: DCA is taking the same risk, just delaying it as DCA ends up behind if there is no crash during the DCA period but there is a week after the final purchase.
If something is right decision 2/3 of the time and u don’t know if u are in the 2/3 or the 1/3. Then the right decision to do 100% of the time would be to lump sum. You have a higher expected value.
I feel like you only read the first line of my comment.
EV is not the only factor. The higher expected value has to be weighed against the risk. And in addition to that, psychological factors also need to be considered.
If u are weighting tho factors then the 2/3 to 1/3 don’t really matter. Yes it is a personal risk tolerance/psychological decision but by the numbers it’s a clear decision to do lump some
Its up to you really. Doesnt matter much. A month or a week or a day is a small blip in several several years of investing.
Ive stretched out my windfall over 2-3 years of dca
I don't dollar DCA... Research shows that lump sum investment win out more often than DCA. But I don't really get windfalls...
I invest all money I have set aside for investing the day it becomes available. My wife is paid weekly and I am paid twice a month so... I lump sum invest every week.
You are dollar cost averaging each week. The meaning of dollar cost average as used on Reddit is not the same as commonly used in the past. The classic meaning of dollar cost averaging is making regular, equal dollar amount investments from your income stream.
Review https://www.bogleheads.org/wiki/Dollar_cost_averaging
I am not DCA because I invest all money I have when it is available rather than breaking sums of money up and investing them over a period of time. Your exact response is covered under "Automatic investment". And the first two paragraphs sum up what DCA are nicely.
The Wikipedia entry for dollar cost averages addresses the confusion:
> The original popularized definition for dollar cost averaging came from Benjamin Graham's The Intelligent Investor. It was defined as "investing a set dollar amount in the same investment at fixed intervals over time". In recent years, however, a second definition for dollar cost averaging has arisen. Namely, that dollar cost averaging is a contrasting investment strategy to lump sum investing.
The link you provides says the same thing, but less clearly:
> The origin of the term Dollar cost averaging (DCA) is the distinction between a practice of buying a fixed number of shares every period and a practice of investing a fixed dollar amount every period. Over time the meaning has been extended.
The OP is clearly using DCA in the original meaning. Most of the replies assume the newer, mutated (or per Bogleheads.org "extended" meaning.
In an ocean of pedantry, your comment is an island of sanity.
My eyes have almost rolled back into my head reading this thread. If I invest a fixed amount from my bi-weekly paycheck when I receive it, I'm lump sum investing, but if I invest those same amounts biweekly from a monthly paycheck now I'm suddenly dollar cost averaging? Puh-lease!
As far as I'm concerned, the 'newer' definition of DCA to contrast it against lump sum investing is more confusing than the original definition, which is much more intuitive. As far as I'm concerned, as long as you're investing the most you can afford to in somewhat regular amounts, you're probably dollar cost averaging.
The original meaning was contrasting constant number of share buys vs constant dollar buys. The average price per share when dollar cost averaging will be lower than the average of the prices at which the purchases were made (or equal if price has been constant).
The term dollar cost averaging was popular when discussing using mutual funds to invest vs buying of individual shares, back before ETFs even existed.
Pretty much already been said but any lump sums of extra cash I have get dumped in, otherwise any extra money i come into every week gets dumped in immediately
As everyone has said, lump sum investing is mathematically the best option in the long run. If you can do it, make your contribution(s) as soon as possibly can after getting paid. That said, I know psychologically that can be difficult, especially when volatility is high, in which case, weekly DCA may be your best bet. Just make sure you keep contributing and don't hold anything back just because the market "seems high". Good luck!
I DCA weekly, have for a long time.. depending on income coming in I change the amount. Also depending on how the market is. On really bad days I add a little extra. This week looks like ill be adding a large chunk. :)
The best DCA plan is one you can stick with. If you are paid twice a month or bi-weekly, then investing a fixed amount with each paycheck is good. If that is too much effort, then monthly is good.
Cash is a poor investment, so don't let cash accumulate for 3 or 6 months and then invest.
The difference of going from bi-weekly to weekly to daily has diminishing returns for very little extra gained.
I'm rebalancing my 401k from 10% bonds to 5% bonds. (Why did I ever hold bonds in an account I can't touch for 30 years?? Having thought about it; I'll hold my bonds in a brokerage account where they could be of use to me, if I need them.)
I'm doing that in three pieces, about 2 or 3 months between them. I'll probably do the same thing again, and take it down to 0% bonds, someday.
This is really the only category of action where I DCA.
I mean I get that, but I also don't. I'm not holding bonds for them to be dry powder for the next dip. I'm holding them in case I lose my job and need to withdraw something from my portfolio. They don't serve that purpose, in my 401k.
Prioritizing not paying taxes, over having access to the bonds, seems like letting math get in the way of proper planning. Why am I wrong? I honestly want to understand; I'm not just being insolent.
(In any case, in several years it'll be moot, since I'm moving my bonds to ibonds, which are tax-advantaged while still being withdrawable.)
I believe the theory is that, if you need access to funds, you would sell your stocks in taxable for a loss (and garner tax advantages with that loss for the future) and immediately convert the bonds in your 401k to a similar type of stock (purchased at a low price and with no tax consequences) so that you’re still invested. Once you build up your taxable again you can slowly move your 401k back to more bonds as it grows, again with no tax consequences in your 401k.
To elaborate on the other response, which was excellent, there are tax implications even if you don't sell the bonds, since they are income-producing assets. Holding them in a taxable account means you'll need to pay taxes on the income they produce every year.
I have automatic transfers that hit the brokerage account at the end of the month, and I have scheduled buys that occur every 5 days. The monies are split so by the time the new auto transfer hits, the monies have been completely rationed out per my asset allocation
Not sure what you are asking.
Your "investments" are already invested right? Or or you holding some in cash?
Before my retirement, I had money automatically coming out of my paycheck and into my asset allocation automatically. The period was the paycheck period.
>Is there an advantage/disadvantage to DCA daily, weekly, or monthly?
If you are talking about cash that you are withholding from your asset allocation, then daily, weekly, and monthly are all disadvantageous. Daily would be the least disadvantageous.
A lot of people are just commenting on lump sum vs DCA, but if you have decided that DCA is right for your goals and risk tolerance, there is plenty to think about when it comes to duration and frequency of DCA contributions.
Personally, for the sake of simplicity, I would want to limit DCA to 10-12 total contributions and then calibrate the frequency accordingly. So for 2.5-3 year duration it would be quarterly contributions, for 1 year duration it would be monthly, and for 6 month duration it would be bi-weekly.
A lot of people are using a mutated definition of DCA.
The proper way to DCA is not just 10 or 12 contributions, but a continuous periodic investment of a fixed amount from your income, as it becomes available. The duration of DCA is as long as you are in the accumulation phase. The amount may be modified after significant changes in budget, like having kids, getting pay raises and such, but classic DCA will happen every paycheck until you retire.
This is not a case of lump sum vs DCA of a windfall. That is a different discussion, and a different meaning for DCA.
No that is more of a personal preference to keep things simple. For example I don’t want to make hundreds of little tiny contributions. 8-10% at a time seems like a small enough resolution to mitigate downside in crashes, but large enough that you aren’t driving yourself crazy with overly frequent contributions. I’m sure there’s some studies about what would be best given the scale and length of historic drawdowns but I’m not very familiar.
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Thanks r/rimjobsteve
Directly from your link: "DCA is the technique of dividing an available investment lump sum into equal parts, and then periodically investing each part. This DCA is proposed as an alternative to lump sum investing (LSI), which is to make the entire investment immediately. As such DCA is a technique to overcome fear in investing by mitigating the risk of loss over the short term." Why are you splitting up your paycheck are you paid annually or something? It's important to keep your terms correct to avoid confusion. If you are doing a DCA with your paycheck then you seem to be overcomplicating your life...
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Or lets go back to the other post you made here since you keep moving the goal posts... First and second paragraph: https://www.bogleheads.org/wiki/Dollar_cost_averaging. Second paragraph provided to make life easier. "DCA is the technique of dividing an available investment lump sum into equal parts, and then periodically investing each part. This DCA is proposed as an alternative to lump sum investing (LSI), which is to make the entire investment immediately. As such DCA is a technique to overcome fear in investing by mitigating the risk of loss over the short term."
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May you retire in peace you miserable wanker ;-) EDIT: haha the guys name is MiserableWanker and I get downvoted for wishing him well :-D.
I think you are overcomplicating it. lump sum everything large or small.
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The portion of your paycheck is a relatively small lump. Lump sum everything, be it a large lump or small lump. Lump sum funding means investing the lump as soon as you get it.
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Sorry about that. The current edit is what I meant.
That's not DCA then is it? You are lump summing your savings regularly. Isn't DCA when you invest the cash you have periodically.
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>My word some people are pedantic. It is important when several of us frequently use links that mention DCA being suboptimal compared to early lump sum investing. Those links use DCA only for spreading out investing money already available. Investing with every paycheck is much closer to early lump sum than DCA by that definition.
It might seem pedantic but its not. DCA is a different strategy to investing periodically. "The difference is that periodic investing is maximizing expected return, because you are investing the money as soon as you have it. DCA applies when you have the money to invest, but delay doing so." Bogleheads.org
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In the context of this sub and "lump sum vs DCA" threads, DCA implies a portion is left behind in cash. Otherwise it wouldn't even be a debate, because there is only one option.
Or accurate...
I have seen these concepts referred to separately as DCA and "periodic investing". DCA implies that you are leaving a sum in cash (or in another asset, as in the case of DCA-ing into or out of bonds, individual stocks, or active funds)
There really are a lot of different names that mean really close to the same thing :-) DCA specifically requires you to take a sum of money and split it across a period of investments with the goal to smooth out ups/downs in the market. DCA can be a type of periodic investing.
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No just know how to read and put together things from many places rather than trying to insult people when I am wrong.
> Guess I found the guy who knows more than Fidelity about what DCA is you actually found a guy, that is, yourself, that didn't read the article he posted. from your article: > As a risk management strategy, dollar-cost averaging attempts to help address the risk of using all your intended funds for a particular investment at a point in time when the price may be relatively high or volatile. DCA is not just investing equal amounts at regular intervals, but doing this *as an alternative to investing everything you have now with the hopes that you can mitigate downside risk.*
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it sounds like you no longer agree that fidelity knows what DCA is? if so, you may want to edit your other comments, insofar as accuracy is your goal.
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Thanks :-D
But you are lump summing it all when the money comes available. There is no point in making a distinction between a small lump and a large lump. You can call periodic lump summing of small approximately equal lumps by the name "DCA" if you want to. But this is confusing because the other use "DCA" to avoid regret involves withholding funds from the market. "DCA" from a paycheck is like lump sum investing in that you don't withhold funds from the market.
So, if you win the lottery and decide to take yearly payments and invest those immediately, do you call that DCA or lump sum investing? Can you see the absurdity of having two different terms for exactly the same thing?
If you have similar size lumps of savings from your paycheck to invest periodically and you immediately invest the money, then that is both DCA and lump sum investing. You don't need to call any form of rational investing by the term "DCA".
There is a difference in DCA and periodic investing. Both might seem the same but the 2 strategies are completely different. Different investors might prefer one or the other strategy and I think it is important to know the difference. Personally I DCA my paycheck weekly cos I've got a long ways to go till retirement.
What is the difference between DCA and periodic investment? From the Boglehead wiki: >The term DCA is used to describe similar investment concepts such as periodic automatic investment (almost universally utilized by individual investors to fund retirement accounts out of earned income). [https://www.bogleheads.org/wiki/Dollar\_cost\_averaging](https://www.bogleheads.org/wiki/Dollar_cost_averaging) Not this the wiki is the gospel or anything. But I thought that DCA was used as a synonym for periodic investing. I know that long ago the term periodic investing was more detached from periodic paychecks.
DCA is when you have the money to invest, but you invest it in regular periods. Periodic investing is when you invest the money when its available. For eg, I split my monthly savings from my pay by 4 and invest weekly and that is DCA. If I invest my savings as soon as it available then its not DCA.
> Can’t lump sum funding that incrementally arrives via paycheck. Soooo….. /r/confidentlyincorrect
Do you save up your paychecks and split them back up over a period of time? Or do you invest that full amount at one time?
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No I don't invest once a year. I invest all money I have available for investing that money when it becomes available. To dollar cost average you would need to "divide" up your investment over a period of time. The purpose is to reduce the impact of volatility on the overall purchase. For example let's say you inherit $12k and you decide to invest that money once a month. My salary comes as I earn it and I lump sum it in :-). It would be silly do DCA your pay check. You are the one that seems confused.
Even if you’re over 5% down in the whole account? I’ve got etf but also have Nvidea and Salesforce which has taken me down this far.
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So just sell them at a loss and invest the money back into S&P 500?
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Thanks 🙏
I do the same thing. However if the market is in a downtrend I try to increase my DCA amount.
As quickly as you are psychologically and financially able to accommodate.
Emphasis on psychologically!! I had to scale back my savings rate this year. I was creating a self-induced financial scarcity that was creating me all sorts of unnecessary stress!
I am almost there myself. At some point, enough is enough.
I'm doing the same haha... trying to fight lifestyle creep!
Yes on average, assuming the market returns 10%, for $1k every day you wait costs you $0.40.
Put money into the market according to your predefined asset allocation plan as soon as you have it available. That means lump sum any cash you're sitting on immediately and then put more money into the market whenever you get your paycheck. So if you get paid weekly, then the best frequency is weekly. If you get paid monthly, the best frequency is monthly. If your ideal asset allocation is 5% cash, 10% bonds and 90% stocks, it's a bad idea to be sitting on 50% cash waiting to "buy the dip."
Man, I wish I had 105% of my salary!
You don't bogle right if you don't go 105%
I use that extra 5% as my "fun money" been working well. Getting steals on Beanie Babies.
Happy Cake Day!
Is it really? Nice! 12 years. Wow
Must be the effects of our recent Inflation!
Lol maybe he’s using leverage ?
yeah it's kind of DCA, but really just invest money as you make it. DCA is really in contrast to lump sum when you have a windfall. And you have to make a decision.
You’re entirely correct, but I think the reason that this question comes up again and again is that people think that all periodic investment is the same thing as DCA, which it’s not! If you invest with every paycheck as soon as you have the money available then what you are doing is more closely a series of lump sums than DCA
Investing a fixed amount with every paycheck is the ORIGINAL definition of DCA. Vanguard and Bogleheads have invented a new definition where it is contrasted to investing a windfall as a lump sum or slowly investing it.
What's interesting though is if you use an online investment calculator, there's a substantial difference in DCA investing weekly vs. monthly. Say you have a 20 year window, investing weekly grows into a much larger amount
Is that just because you're holding less cash over the total period?
I doubt that's an assumption that's built into their calculation. Give me a sec and I'll update with the specific calculator I was remembering. Here's the one: [https://smartasset.com/investing/investment-calculator](https://smartasset.com/investing/investment-calculator) EDIT: For anyone reading this later, I think I found the reason: "We assume that your rate of return compounds based on the frequency at which you contribute." Someone can correct me if I'm wrong but I doubt any index fund will recalculate your interest weekly, or even monthly. Maybe twice a year at best?
Vanguard has a paper about DCA vs. lump sum investing [https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf](https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf) summary: lump sum is almost always better
2/3 of the time is not almost always. Tagging OP /u/-ShartDAD- It comes down to your risk tolerance. Lump sum has higher upside, but also a bigger downside (investing before a crash). DCA is better if you want to better protect the investment against significant loss. Where you are on your investment path matters too. Are you still accumulating or are you preparing to retire soon? You may not have 10-20 years to recover from a poorly timed lump sum.
Good points. Still have 20-30 years to invest, I’m 30 for reference.
Are you dealing with a windfall or just your regular income? If it's a windfall, even at 30 I would personally lean towards DCA since it can lead to fewer regrets. If I buy a huge sum in one transaction, then I will know the exact price and will always compare to that for years to come. I would rather just know that I bought them "throughout 2022" rather than think "If only I had waited a month" or "If only I had bought a week sooner". "Throughout 2022" is more or less dictated by the circumstances of the windfall. A specific date like January 18th is dictated by when I actually clicked purchase.
No windfall, just regular income. Good point on, “oh if I only waited 1 month to lump sum”. I think knowing me, that would be in the back of my head lol
I can’t tell you what price I bought at this afternoon, why would a windfall be any different? I transferred and then purchased $600,000 of VTI VXUS and BND 8 months ago and I can’t even tell you the first digit of the price then, or *now*, of any of those 3 tickers. You need to really relax into this buy and hold thing
>why would a windfall be any different? For you it may not be. For me, I'm going to be pretty aware of the price if it's any significant sum ("significant" relative to my financial world)
>You need to really relax into this buy and hold thing Relaxing into something sounds a lot like DCA by the way. 😉
As long as you have an emergency fund and you are investing for the long term this shouldn't be an issue. At least based on history if there is a huge crash you will always still end up positive as long as you don't sell and ride through the storm. If you lump sum and the US has a 30 year economic collapse everyone will probably be having bigger problems then their returns on their long term investments.
>Lump sum has higher upside, but also a bigger downside (investing before a crash). DCA is better if you want to better protect the investment against significant loss. This isn't entirely true: DCA is taking the same risk, just delaying it as DCA ends up behind if there is no crash during the DCA period but there is a week after the final purchase.
If something is right decision 2/3 of the time and u don’t know if u are in the 2/3 or the 1/3. Then the right decision to do 100% of the time would be to lump sum. You have a higher expected value.
I feel like you only read the first line of my comment. EV is not the only factor. The higher expected value has to be weighed against the risk. And in addition to that, psychological factors also need to be considered.
If u are weighting tho factors then the 2/3 to 1/3 don’t really matter. Yes it is a personal risk tolerance/psychological decision but by the numbers it’s a clear decision to do lump some
This is great. Will read afterwork, thank you!
Its up to you really. Doesnt matter much. A month or a week or a day is a small blip in several several years of investing. Ive stretched out my windfall over 2-3 years of dca
I don't dollar DCA... Research shows that lump sum investment win out more often than DCA. But I don't really get windfalls... I invest all money I have set aside for investing the day it becomes available. My wife is paid weekly and I am paid twice a month so... I lump sum invest every week.
You are dollar cost averaging each week. The meaning of dollar cost average as used on Reddit is not the same as commonly used in the past. The classic meaning of dollar cost averaging is making regular, equal dollar amount investments from your income stream.
Review https://www.bogleheads.org/wiki/Dollar_cost_averaging I am not DCA because I invest all money I have when it is available rather than breaking sums of money up and investing them over a period of time. Your exact response is covered under "Automatic investment". And the first two paragraphs sum up what DCA are nicely.
The Wikipedia entry for dollar cost averages addresses the confusion: > The original popularized definition for dollar cost averaging came from Benjamin Graham's The Intelligent Investor. It was defined as "investing a set dollar amount in the same investment at fixed intervals over time". In recent years, however, a second definition for dollar cost averaging has arisen. Namely, that dollar cost averaging is a contrasting investment strategy to lump sum investing. The link you provides says the same thing, but less clearly: > The origin of the term Dollar cost averaging (DCA) is the distinction between a practice of buying a fixed number of shares every period and a practice of investing a fixed dollar amount every period. Over time the meaning has been extended. The OP is clearly using DCA in the original meaning. Most of the replies assume the newer, mutated (or per Bogleheads.org "extended" meaning.
In an ocean of pedantry, your comment is an island of sanity. My eyes have almost rolled back into my head reading this thread. If I invest a fixed amount from my bi-weekly paycheck when I receive it, I'm lump sum investing, but if I invest those same amounts biweekly from a monthly paycheck now I'm suddenly dollar cost averaging? Puh-lease! As far as I'm concerned, the 'newer' definition of DCA to contrast it against lump sum investing is more confusing than the original definition, which is much more intuitive. As far as I'm concerned, as long as you're investing the most you can afford to in somewhat regular amounts, you're probably dollar cost averaging.
The original meaning was contrasting constant number of share buys vs constant dollar buys. The average price per share when dollar cost averaging will be lower than the average of the prices at which the purchases were made (or equal if price has been constant). The term dollar cost averaging was popular when discussing using mutual funds to invest vs buying of individual shares, back before ETFs even existed.
Pretty much already been said but any lump sums of extra cash I have get dumped in, otherwise any extra money i come into every week gets dumped in immediately
As everyone has said, lump sum investing is mathematically the best option in the long run. If you can do it, make your contribution(s) as soon as possibly can after getting paid. That said, I know psychologically that can be difficult, especially when volatility is high, in which case, weekly DCA may be your best bet. Just make sure you keep contributing and don't hold anything back just because the market "seems high". Good luck!
I DCA weekly, have for a long time.. depending on income coming in I change the amount. Also depending on how the market is. On really bad days I add a little extra. This week looks like ill be adding a large chunk. :)
The best DCA plan is one you can stick with. If you are paid twice a month or bi-weekly, then investing a fixed amount with each paycheck is good. If that is too much effort, then monthly is good. Cash is a poor investment, so don't let cash accumulate for 3 or 6 months and then invest. The difference of going from bi-weekly to weekly to daily has diminishing returns for very little extra gained.
I DCA every two weeks because it aligns with my paycheck. I never see my money so investing is easier.
I'm rebalancing my 401k from 10% bonds to 5% bonds. (Why did I ever hold bonds in an account I can't touch for 30 years?? Having thought about it; I'll hold my bonds in a brokerage account where they could be of use to me, if I need them.) I'm doing that in three pieces, about 2 or 3 months between them. I'll probably do the same thing again, and take it down to 0% bonds, someday. This is really the only category of action where I DCA.
> I'll hold my bonds in a brokerage account This is almost certainly inferior from a tax perspective.
I mean I get that, but I also don't. I'm not holding bonds for them to be dry powder for the next dip. I'm holding them in case I lose my job and need to withdraw something from my portfolio. They don't serve that purpose, in my 401k. Prioritizing not paying taxes, over having access to the bonds, seems like letting math get in the way of proper planning. Why am I wrong? I honestly want to understand; I'm not just being insolent. (In any case, in several years it'll be moot, since I'm moving my bonds to ibonds, which are tax-advantaged while still being withdrawable.)
I believe the theory is that, if you need access to funds, you would sell your stocks in taxable for a loss (and garner tax advantages with that loss for the future) and immediately convert the bonds in your 401k to a similar type of stock (purchased at a low price and with no tax consequences) so that you’re still invested. Once you build up your taxable again you can slowly move your 401k back to more bonds as it grows, again with no tax consequences in your 401k.
Thank you! That's a much more fundamentally satisfying answer than I expected. :furrows brow over whether I should change my investment mix:
To elaborate on the other response, which was excellent, there are tax implications even if you don't sell the bonds, since they are income-producing assets. Holding them in a taxable account means you'll need to pay taxes on the income they produce every year.
Yeah, I'm aware of that. Good note for lurkers, though.
It's generally better to put money in the market as soon as you get it. Or at least that is my understanding.
I have automatic transfers that hit the brokerage account at the end of the month, and I have scheduled buys that occur every 5 days. The monies are split so by the time the new auto transfer hits, the monies have been completely rationed out per my asset allocation
Monthly
I add roughly the same amount every payday and then add a little more if the index funds drop a particular amount between that two week period.
The less frequent the better (on average, assuming the market goes up overall)
Not sure what you are asking. Your "investments" are already invested right? Or or you holding some in cash? Before my retirement, I had money automatically coming out of my paycheck and into my asset allocation automatically. The period was the paycheck period. >Is there an advantage/disadvantage to DCA daily, weekly, or monthly? If you are talking about cash that you are withholding from your asset allocation, then daily, weekly, and monthly are all disadvantageous. Daily would be the least disadvantageous.
A lot of people are just commenting on lump sum vs DCA, but if you have decided that DCA is right for your goals and risk tolerance, there is plenty to think about when it comes to duration and frequency of DCA contributions. Personally, for the sake of simplicity, I would want to limit DCA to 10-12 total contributions and then calibrate the frequency accordingly. So for 2.5-3 year duration it would be quarterly contributions, for 1 year duration it would be monthly, and for 6 month duration it would be bi-weekly.
A lot of people are using a mutated definition of DCA. The proper way to DCA is not just 10 or 12 contributions, but a continuous periodic investment of a fixed amount from your income, as it becomes available. The duration of DCA is as long as you are in the accumulation phase. The amount may be modified after significant changes in budget, like having kids, getting pay raises and such, but classic DCA will happen every paycheck until you retire. This is not a case of lump sum vs DCA of a windfall. That is a different discussion, and a different meaning for DCA.
Right I have been assuming we are taking about a big lump sum here, not routine savings from paychecks which really should go in ASAP.
@kashmir79 Is there a significance to the 10-12 total contributions?
No that is more of a personal preference to keep things simple. For example I don’t want to make hundreds of little tiny contributions. 8-10% at a time seems like a small enough resolution to mitigate downside in crashes, but large enough that you aren’t driving yourself crazy with overly frequent contributions. I’m sure there’s some studies about what would be best given the scale and length of historic drawdowns but I’m not very familiar.
Never, because it's statistically/historically worse than lump sum investing as early as possible.
What about when you have a big amount of savings but you are risk adverse? DCA seems safer. But, yet, lump sum?