DCA vs Lump Sum Investment ~ Your Thoughts?

[DROPOUT]

Hey Y'all ...

Wanted to hear your thoughts on something. With the market where its at today, how would you go about investing lets say ... $100,000 in cash?

Over the past several months, I have been DCA'ing ... Its a slow process, but I allows me to sleep better at night.

Would you:
A) Dollar Cost Average (DCA) ~ And enter the market at lets say $5k - $10k/monthly
or
B) Invest the entire $100k in one lump sum.
or
C) Hold On for a decent market drop while earning 1% in a Savings Acct.

Thoughts & Idea's welcome

 

[jim584672]

All in baby. If we are in a bull every day you wait is like loosing some gain.

 

[Big_Hitter]

I heard someone has an aunt that sells VUL. You could put it all in that.

 

[Midpack]

If you do a search here you'll see it's been discussed at length many times.

Or Let me google that for you

 

[DROPOUT]

I heard someone has an aunt that sells VUL. You could put it all in that.

LOL ... Was just in that thread. No thanks

 

[DROPOUT]

If you do a search here you'll see it's been discussed at length many times.

Or Let me google that for you

I'm sure it has ... I've seen several old threads on the subject.

But at TODAY's market value & trading is what I'm after

Just whatever your thoughts might be. Your thoughts today could very well be different then 5 years ago, or even 8 years ago.

 

[Midpack]

I'm sure it has ... I've seen several old threads on the subject.

But at TODAY's market value & trading is what I'm after

Just whatever your thoughts might be. Your thoughts today could very well be different then 5 years ago, or even 8 years ago.

On the subject of DCA vs lump sum, my thoughts haven't changed with valuations over time. But there is no definitive right answer, both have their merits, neither is wrong - and there are plenty of academic studies to read that might be more valuable than two sentence replies...

 

[dallas27]

DCA is pixie dust. If it was ever the right move, then shouldn't everyone sell everthying right now, and DCA back in over time? Rinse, repeat.

It's intellectually bankrupt hogwash.


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[pb4uski]

I would value average in rather than DCA. Invest $10k today, in a month add whatever you need to to increase the value to $20k, a month later, add whatever you need to to increase the value to $30k... repeat until the $100k is fully invested.

 

[hnzw_rui]

I would value average in rather than DCA. Invest $10k today, in a month add whatever you need to to increase the value to $20k, a month later, add whatever you need to to increase the value to $30k... repeat until the $100k is fully invested.

Yup, this is what I'd do. I realize lump sum's likely the better option more often than not but I think I'm going to appease my monkey brain and just do value cost averaging. There's more pain with losing money than there is happiness at gaining it.

 

[mpeirce]

Yup, this is what I'd do. I realize lump sum's likely the better option more often than not but I think I'm going to appease my monkey brain and just do value cost averaging. There's more pain with losing money than there is happiness at gaining it.

Me too.

For anything above a fairly low threshold, I divide up unto 2-4 piles and buy in over time.

If the market's up: "glad I put in pile #1 when I did!"

If the market's down: "glad I put in pile #n when I did!"

 

[tulak]

I lumped sum into the market in early 2008, before the market crashed. I would definitely have been better off DCA'ing. In retrospect, I would definitely DCA, but making the same choice today I'd still probably invest it all to my AA and be done with it.

The data shows that lump sum investing on average is better than DCA. Valuations today are higher than normal, so there would be little harm in value averaging into the market. If you're in it for the long-haul, it probably won't matter much. The important part is to stick with your AA.

 

[RunningBum]

DCA is pixie dust. If it was ever the right move, then shouldn't everyone sell everthying right now, and DCA back in over time?

As a non-timer of the markets, that's how I always look at it. Your $100K is no different than mine. If there's a reason you would only have 10% of it invested, wouldn't that mean I should also have 10% of it invested, meaning I should sell $90K? The only difference would be any transaction costs and tax hits. But I don't think that's the reason people treat it differently. It's harder to accept a negative consequence if it's because of an action you took, but if you miss out because of not taking action, many people brush it off.

An asset allocation plan is what keeps your portfolio relatively safe while trying to optimize gains.

Now, if your a market timer, by all means, do something different.

And if you'll sleep better putting it in a bit at a time, by all means do that too. It probably won't make much difference. And you might come out better. Or you could miss out on more gains. Sleeping peacefully is important.

Personally, I'd feel just as bad to miss out on gains as I would to jump in and lose money, but some people don't mind the former so much and hate the latter. Especially as I said, if it's due to their action. I try not to let emotions rule my investment decisions. Sometimes I don't follow my own advice on that, but on this one I'm pretty consistent.

Here's the problem I have with waiting for a market drop. Say you are looking for 10%. If it drops 8% and recovers, you might not get in. At all. So then you watch it recover and go back up another 10%. So then you say, that's it, if it drops 5%, I'm in. Finally it drops that 5% and you got back in. 5% higher than when you first had the money.

 

[truenorth418]

If you are truly torn about this decision, another way to approach it is to split the difference: lump sum 50% of the total now and then dollar cost average the remaining 50%.




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[hnzw_rui]

Here's the problem I have with waiting for a market drop. Say you are looking for 10%. If it drops 8% and recovers, you might not get in. At all. So then you watch it recover and go back up another 10%. So then you say, that's it, if it drops 5%, I'm in. Finally it drops that 5% and you got back in. 5% higher than when you first had the money.

Therein lies the benefit of DCA/VCA for folks who have a hard time separating their emotions from their investments (myself included, unfortunately). It's that in-between of immediate lump-sum investing and trying to time the market.

 

[audreyh1]

I can't psychologically buy in lump sum. The only way I can buy in is to DCA a or rebalance.

Lucky for me my biggest lump sum investment was from 2000-2002, so I happened to fall on a period where it paid off.

I can't begin to tell you where the market is now - no one knows.

 

[RunningBum]

Therein lies the benefit of DCA/VCA for folks who have a hard time separating their emotions from their investments (myself included, unfortunately). It's that in-between of immediate lump-sum investing and trying to time the market.

I shouldn't stir things up, but I'm going to anyway.

You call it a benefit, but I think it's taking the worst of both worlds. You don't have all your money fully invested and working for you, and you don't have a reason for it like a market timer does. You really have no reason for keeping money out other than a fear of making an active decision that could go wrong, even though over time the odds favor being in the market.

To be fair, the OP did frame the question in the current market. Like Audrey in the post before me, I don't really know where the market is though my impression is that it might be a bit overvalued.

I would at least be looking at value cost averaging (over dollar cost averaging), which has an element of market timing in a predetermined sort of way, as I understand it, though I haven't looked too closely at it since averaging in doesn't interest me, and I'm unlikely to have any new money coming in anymore.

Like I said, what the rest of you do with your money is your business, and having a plan you can sleep at night with is important.

 

[rayvt]

If you invest $10K each month, in 10 months you are 100% invested. So just what has DCA'ing done for you? Either tomorrow or next May all $100K will be invested. What is so special about the ensuing 10 months?

I agree with the poster who said that if DCA was so great, then when you get fully invested you should pull it all out and then DCA it in again.

 

[clifp]

If you > $1 million in liquid assets than stick all in at once. If you have less than $200K than DCA over 3-12 months. Between those amounts, it is really up to you.

I personally am in favor of putting all in once, not so much because of the math, although it is clear that putting it all in at once is superior. But rather because in my experience people who talk about DCA over say a year, often procrastinate and a year passes and only 10-20K has been invested.

 

[bingybear]

Over the past several months, I have been DCA'ing ... Its a slow process, but I allows me to sleep better at night.

I think the reason to DCA may be what you said and I bolded above.

But I would agree with those who recommend value averaging...

When we talk about the market being high... I think most refer to the US market, but you may be looking internationally and some of those may be undervalued.

 

[ETFs_Rule]

Would you:[/B]
A) Dollar Cost Average (DCA) ~ And enter the market at lets say $5k - $10k/monthly
or
B) Invest the entire $100k in one lump sum.
or
C) Hold On for a decent market drop while earning 1% in a Savings Acct.

Thoughts & Idea's welcome

If you are properly diversified then you don't worry about a market drop. DCA is just putting off risk. At some point you have to invest or you may just keep missing the train as the bond/stock markets go up and inflation eats away at your idle money. A 1% CD doesn't cut it.

 

[hnzw_rui]

If you invest $10K each month, in 10 months you are 100% invested. So just what has DCA'ing done for you? Either tomorrow or next May all $100K will be invested. What is so special about the ensuing 10 months?

I agree with the poster who said that if DCA was so great, then when you get fully invested you should pull it all out and then DCA it in again.

I don't think any of the posters in favor of DCA/VCA claimed it was a mathematically sound or rational decision. Rather, it's an admission that human beings can be irrational creatures. If you can separate your emotions from your investments, good for you. If not, DCA/VCA is one way to force us irrational folks to invest new monies.

As for selling and DCA back in, tax consequences are a big deterrent for that.

 

[Which Roger]

We need another poll option: "It Depends".

If I had 100K cash to invest and my total portfolio was 10M, I would lump sum. But if I just had the 100K and no other assets, I would DCA.

 

[dallas27]

As for selling and DCA back in, tax consequences are a big deterrent for that.

Really? Taxes are the reason that stops people from repeating DCA? No taxes on 401/ira.


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[mathjak107]

historically dca does not work well since long term markets are up 2/3's of the time and down only 1/3.

that is the reason target date funds are not the best vehicles for buying in to over time.

you get less and less shares as prices go higher at the same time the fund is cutting back.

you can end up way more conservative than you wanted to be .