buying into the stock market

[Animorph]

Quote:

Originally Posted by RunningBum Don't feel compelled to dollar cost average if aren't convinced about it. The general trend of the market is up, so you're losing out by leaving money out of the market. While it could drop the day, week, or month after you invest, it could also jump or steadily rise and you'll never get a chance to invest as cheaply. It is a way to reduce your risk against a sudden drop, but that drop could come the day after you've made your last DCA investment, and then you've just limited your gains during the run-up, while taking the full hit from the drop. I don't DCA and I limit my risk with a proper asset allocation so that I'm only exposed to the market to the limit I'm comfortable with. Now you've heard both sides on DCA, so make your own decision.

That's absoutely true, and usually I don't DCA. However, with obvious Europe problems and probable U.S. echoes I see way more downside than upside for the next year or two (IMHO). So this is one of the times I would DCA/value average into the market. That is essentially what I will be doing with my current cash, buying equities as my portfolio value hits a few fixed percentage loss points (-20%, -25%, ...).

[RunningBum]

OK, but let's call that what it is--market timing. And there's nothing wrong with that. I've just found I'm not good enough at recognizing dips vs. free falls, or when a rally is nearing an end. May was a rough month, does that mean it's time to charge back in, or is the outlook still bad?

And really, if you are DCA'ing in, shouldn't I be selling most of my stocks (as long as I'm not taking much of a tax hit, or short holding term penalty) since I am just as exposed? My $100K is the same as the OPs, right? If there's a risk in investing it all at once, don't I have the same risk in being fully invested?

It's just a mental thing. People don't like to make a decision and have it blow up on them in the near term. However, if you've been invested for awhile, and then the market tanks, you are less likely to kick yourself for passively staying invested, even though the hit is the same.

[sunnysideup]

Quote:

Originally Posted by Andre1969 Funny thing is, lately it seems like I've been having better luck with individual stocks than I have with mutual funds. Since my portfolio bottomed out in November of 2008, my Scottrade account's value is up about 5.5x, while my portfolio as a whole is up around 3.3x. Now, those numbers include contributions I've made since then, which I'm too lazy to look up right now. So, that's not my actual return. However, I really haven't invested a whole lot into the Scottrade account since then, either. Mainly just taken dividends and reinvested, and if a growth stock grew too much, sold a bit off, and put it into something that was paying a good dividend.

I too have both dividend stocks and mutual funds and while I haven't calcuated the exact return, my dividend stocks are way ahead of my funds since the same time period (since approximately April 2008 when I starting moving money from funds into stocks in non 401k accounts).

I can't believe that the difference is so noticeable, but it is. And my funds are well diversified. While I have no choice in my 401k but to put my money into funds, I have been rethinking my investing strategy, and perhaps longer term I will be investing the same way my parents have, reinvesting dividends in solid stocks....That's what they FIRE'd on and it has served them well. (of course, with the disclaimer that they started in the 80s and they did very well in the 90s. The market's past performance may not be repeated...)

[pb4uski]

Quote:

Originally Posted by frank I see most of the people on here prefer mutual funds. Does anyone have any idea how much they paid on average for the last 10 years for the large index funds? I thought dollar cost averaging was steadily investing over a long period of time. If you have a large amount of money that is all coming due at one time, how do you dollar cost average?

If I had a large amount to invest, I would value average rather than DCA. With value averaging, you invest more when stocks are underperforming and less when stocks are overperforming. Studies have shown that overall returns are typically slightly better.

So in your example you have 100k to invest and let say you want to do it over a year. Your first deposit would be $9. The next month you would invest the difference between your balance and $18k. The next month you would invest the difference between your balance and $27k. So if the market does well in a month you would invest less and if it does poorly you would invest more - buy low, buy less high.

[Midpack]

Quote:

Originally Posted by Animorph That's absoutely true, and usually I don't DCA. However, with obvious Europe problems and probable U.S. echoes I see way more downside than upside for the next year or two (IMHO). So this is one of the times I would DCA/value average into the market.

So far, I've never DCA'd with blocks of holdings either. Nothing whatsoever against DCA as a practice, a built in feature of employer 401k's that has served employees well. And in this case DCA won't likely do any harm.

But I wonder about using "obvious problems" and "more downside than upside" as a reason to DCA. Upsides (and downsides) often come as a complete surprise to everyone - especially "the experts."

One of the most enduring investing adages comes to mind..."Be fearful when others are greedy, and be greedy when others are fearful (when the accepted consensus is way more downside than upside)." YMMV

[Animorph]

Quote:

Originally Posted by Midpack So far, I've never DCA'd with blocks of holdings either. Nothing whatsoever against DCA as a practice, a built in feature of employer 401k's that has served employees well. And in this case DCA won't likely do any harm. But I wonder about using "obvious problems" and "more downside than upside" as a reason to DCA. Upsides (and downsides) often come as a complete surprise to everyone - especially "the experts." One of the most enduring investing adages comes to mind..."Be fearful when others are greedy, and be greedy when others are fearful (when the accepted consensus is way more downside than upside)." YMMV

Yup. And it is a clear case of market timing. But DCA'ing a large lump sum is also about overcoming the fear of a large market drop right after you invest the whole thing in one fell swoop. And it is also about going ahead and investing some of it now, regardless of what you think the market is going to do. If the market was lower or completely average I'd recommend investing all at once. Or if this was something that was going to happen many times in the future I'd go all at once and let the averages take over. For a one-time shot under these conditions I'd go partially with my hopefully reasoned expectations (not a gut feeling) and DCA. At least I'm not holding all the cash waiting for the perfect time to invest.

[schroedersmomanddad]

Any thoughts on buying the Dogs of the Dow? I'm still trying to decide how to invest our nest egg. I'm leaning toward a 50/50 split between stock/bonds.
All comments are appreciated.

[sailfish]

Quote:

Originally Posted by schroedersmomanddad Any thoughts on buying the Dogs of the Dow? I'm still trying to decide how to invest our nest egg. I'm leaning toward a 50/50 split between stock/bonds. All comments are appreciated.

I like the top 10 dividend payers of the DOW 30. They are in most large cap funds anyway. I used to be big on mutual funds for the equity part of my retirement portfolio, but they didn't pay enough dividends so I could just live on that plus SS. Now I try to usually hold solid dividend payers that have a very long track record of increased payments. I am heavy in energy but I can live with the large swings that do occur, like at the present time. I use Vanguard bond funds for the defensive part, as they also pay interest. I am 66 with a 70/30 ratio of equity/bonds.

[ReadySkiDaddy]

+ 3 for ETF's through a deep discount brokerage. I'd diversify ETF's though. Weight more towards conservative ETF's like SPLV, XLU, XLP and maybe even hedge the market with some GLD.

"By periodically investing in an index fund the know-nothing investor can actually outperform most investment professionals." -- Warren Buffett
"The statistical evidence proving that stock index funds OUTperform between 80% and 90% of actively managed equity funds is so overwhelming that it takes enormously expensive advertising campaigns to obscure the truth from investors.”-- Peter Lynch