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Old 02-07-2019, 09:14 AM   #21
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Originally Posted by audreyh1 View Post
In this article's case "cash on the sidelines" refers to cash set aside to invest later waiting for a dip. Not extra cash for living expenses.
Correct.

It’s an interesting read, especially for someone in the ‘accumulation’ mode. But, less interesting (and likely less applicable) for someone in the ‘decumulation’ mode, as it doesn’t account for:

- MPT & the AA we each use
- Returns on the ‘cash’ (which are, in fact, just very short term FI investments)
- The behavioral benefits of holding cash short-term FI
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Old 02-07-2019, 09:24 AM   #22
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If God wanted to play market timing, he would not just "buy the dip". He would also "sell at the peak", and go "all in" when it was right.

His performance would be something completely different than what the article shows. Just look at the charts in the article, and one can see that.

Not that someone could be God like.
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Old 02-07-2019, 09:37 AM   #23
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Originally Posted by NW-Bound View Post
If God wanted to play market timing, he would not just "buy the dip". He would also "sell at the peak", and go "all in" when it was right.

His performance would be something completely different than what the article shows. Just look at the charts in the article, and one can see that.

Not that someone could be God like.
Excellent point!
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Old 02-07-2019, 09:42 AM   #24
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For someone who is young and still accumulating, DCA via 401k contribution is the right way to do. I did that in my working years, and the only regret is not being more heavy in stocks.

Being a retiree in the spending phase, I am more interested in seeing the performance difference between "hold-and-sell" vs. "rebalance" strategies. But that of course is not the subject of the article, and out-of-topic.
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Old 02-07-2019, 10:10 AM   #25
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Being a retiree in the spending phase, I am more interested in seeing the performance difference between "hold-and-sell" vs. "rebalance" strategies. But that of course is not the subject of the article, and out-of-topic.
IIRC, Otar did some of this (at least the rebalancing strategies part) in his book “Unveiling the Retirement Myth.”
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Old 02-07-2019, 10:23 AM   #26
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There wouldn't be 40 years of data for anything starting after 1979.
I understand that, and gee, how convenient that happens to be for the thesis being made from the article. Another big point I just noticed is that the article seems to suggest that between buying the dips, your accumulated money is stuffed into the mattress. If you actually behaved the way real-world people behave, that money would be earning interest while you're waiting for the dips. That would likely massively change the outcome if the interest income were incorporated into the outcome. I'm not trying to dissuade anyone from regular DCA over a long period; I just think this was a one-sided article that overstates the case and I prefer objective research. (Even though clearly no one can perfectly time every big dip.)

"Buy the Dip: You save $100 (inflation adjusted) each month and only buy when the market is in a dip... Not only will you buy the dip, but I am going to make you omniscient (i.e. “God”) about when you buy. You will know exactly when the market is at the absolute bottom between any two all-time highs."
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Old 02-07-2019, 10:33 AM   #27
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The author of the blog did address a question in the comments about including interest from the cash accumulated between buys:

Quote:
Anonymous commented on Feb 06

Thanks for the post, Nick. One quick follow-up question- did you consider the yields on cash (via 6-month T-bills, historical CD rates, or any other metric) over the years?

Clearly yields are very low today, but in the 80s 6-month CD rates were 7%+ for the majority of the decade and in the 90s were often above 4%, which would improve the BTD results (would have higher cash balances to purchase more stock on the dips.) I would assume many investors who build up cash to buy on dips would attempt to get some yield on their cash in the meantime.

Nick Maggiulli commented on Feb 06

I assumed inflation-adjusted cash over time (i.e. invest in TIPS). I did not look at using other forms of fixed income, but my prior suggests that they would not change the results that much. And even if they did, remember that Buy the Dip still requires perfect timing, which is the most ridiculous assumption I made. By Buying the Dip a little later than the bottom and all the outperformance would likely fade once again. So, on balance, I don’t think the cash yield was that wild of a thing to ignore.
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Old 02-07-2019, 10:42 AM   #28
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The value of DCA goes way beyond investment performance. It enforces a habit of investing your savings.


I didn't have the wisdom of this article when I started investing, but "pay yourself first" and an article on the ease of automatic mutual fund purchases convinced me to purchase shares every month - money went straight from the bank account where the paycheck landed to mutual funds. (and to the 401K too).



Without that little step, I wouldn't have ER'd when I did.


Now, I don't have any income to DCA, so I don't have to read the article
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Old 02-07-2019, 10:56 AM   #29
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Yes, DCA as funds become available while accumulating and rebalance regularly while withdrawing are two techniques that ignore market valuations and won’t screw you up over the long term. The key is to set an investment policy and stick to it. If you can’t stick to it you need to re-evaluate your investment strategy and find one that does allow you to stick to it and ignore short-term noise.
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Old 02-09-2019, 10:03 AM   #30
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DCA is a real benefit to those (like myself) who have/had the luxury of a good payroll department that makes it easy to put away the money before it ever hits your leaky wallet.

Self-employed friends of mine who have all the best intentions and smarts find it difficult to maintain the discipline.

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