Is it better to DCA or to set up low limit orders?

[UpQuark]

For the money I have from the sale of my house that I want to invest in equities, I had thought to DCA in equivalent weekly amounts from 2nd week of June to 2nd week of November.
The first three weeks I invested the price dropped after I bought and it is very depressing. So last week I tried my first attempt at a limit order and it got filled the next day and so far it is nice and green (made a little money).

Now I'm not sure whether to keep DCA'ing at market price each week, or whether to maybe put in several limit orders at once for July, using attractive price limits and see if they get filled. But if they don't get filled, how long should I wait before I buy at market price (since my goal is to slowly invest the money week by week for the next 4+ months)?

I don't actually have the money for August-November because I stuck it in some T-bills and T-notes instead of leaving it sit (though now it looks like the rate on the core position has been doubled so it is at least competitive with a bank saving account, but it wasn't when I started and it is so hard to keep re-thinking where to have the money sit).

I don't know if I could put lots of limit orders at shockingly low prices and then if they get filled could I liquidate the t-notes/t-bills to cover the cost, or would Fidelity not fill the orders if I run out of the available cash?

[TheWizard]

Excellent question.
I think you need to have the money in your settlement account to cover all limit orders.

I don't have a large lump sum to invest.
What I have is excess retirement income each month. So a different situation where my target AA for my taxable account is 95% stocks and 5% cash.

If I got $300k in cash right now, I'd probably use limit orders to invest it.
I'm not quite sure what my exact approach would be, it would depend a lot on how much I already had invested...

[pb4uski]

One strategy that I like over DCA is value averaging, whihc is similar as DCA but with a twist. Let's say you want to invest $120,000 over 12 months. Invest $10,000. A month later, add whatever you need to add to bring your total to $20,000. So if at the end of the month the iniital $10k is $9,500, then you add $10,500. OTOH, if it is $11,000 then you only add $9,000.

Repeat at the end of the next month, adding whatever you need to to bring you balance to $30,000. Repeat monthly until the entire amount is invested.

In theory, you buy more when values are relatively low and buy less when values are relatively high.

[jurgs01]

Quote:

Originally Posted by UpQuark For the money I have from the sale of my house that I want to invest in equities, I had thought to DCA in equivalent weekly amounts from 2nd week of June to 2nd week of November. The first three weeks I invested the price dropped after I bought and it is very depressing. So last week I tried my first attempt at a limit order and it got filled the next day and so far it is nice and green (made a little money). Now I'm not sure whether to keep DCA'ing at market price each week, or whether to maybe put in several limit orders at once for July, using attractive price limits and see if they get filled. But if they don't get filled, how long should I wait before I buy at market price (since my goal is to slowly invest the money week by week for the next 4+ months)? I don't actually have the money for August-November because I stuck it in some T-bills and T-notes instead of leaving it sit (though now it looks like the rate on the core position has been doubled so it is at least competitive with a bank saving account, but it wasn't when I started and it is so hard to keep re-thinking where to have the money sit). I don't know if I could put lots of limit orders at shockingly low prices and then if they get filled could I liquidate the t-notes/t-bills to cover the cost, or would Fidelity not fill the orders if I run out of the available cash?

I do both. Limit orders for my value stock accumulation and day trading in brokerage, and dca for mutual funds in sectors I like.

[mrfeh]

If you believe US equities generally move upward (as they have for decades), the best thing to do is invest it all immediately. There are an infinite number of threads on this subject over at bogleheads.org if you want to read them.

If you don't believe US equities will continue to increase in value, then you wouldn't make this investment in any circumstances.

Anything else is just market timing.

[VanWinkle]

I am in the same situation with a mortgage I hold paying off this week. I intend to dump it all into the market next week. I will actually sell equities in my IRA and replace them with the dreaded bond fund(buy low), replace the same equities in my taxable account, and then invest the remaining balance into equities in my taxable account. I will likely look for a down day just for fun, but no matter what it goes in next week. DCA is fine if you feel bad watching it go down, but a better cure is to quit looking daily or weekly. I also like the value averaging that PB is explaining if you are buying over a time period.

[joesxm3]

One strategy is to use Bollinger bands and RSI to detect when a stock is oversold. Also use Fibonacci levels to pick resistance points.

DCA into your ready to use cash, but set limit orders to actually buy when supposedly oversold. Those who do this will set limit orders at the fib levels in increasingly larger amounts.

If your limit orders do not hit, build up cash and wait until the price hits the levels.

Say stock at $100 and fib levels at $95, $87, $75 and you have $100. Then set limit $20 at $95, $30 at $87 and $50 at $75.

If you don't do charts you can guess at the levels?

[UpQuark]

Quote:

Originally Posted by mrfeh .... If you don't believe US equities will .... Anything else is just market timing.

But I thought the point of DCA is conceding that prices go up and down and since market timing is not something people are good at, that the DCA method acknowledges the lack of knowledge and tries to improve the odds versus just throwing all the money in at once?

[OldShooter]

Quote:

Originally Posted by UpQuark But I thought the point of DCA is conceding that prices go up and down and since market timing is not something people are good at, that the DCA method acknowledges the lack of knowledge and tries to improve the odds versus just throwing all the money in at once?

No. Since the general market trend is up, your best odds for growth are to get the money in right away. Dribbling the money in means that the later money misses the opportunity to grow for several periods.

There are all kinds of statistical studies that show that all-at-once is financially optimal. But tell that to the guy who put his money in just before a crash. He will not appreciate the observation.

Where DCA shines, however, is in catering to the risk aversion that evolution has baked into us. By dribbling the money in, the odds of taking a big hit on a large amount are reduced. Each purchase feels less risky because it is only a fraction of the stash. I guess you could say that DCA is kind of a psychological crutch. But that's not a bad thing and, really, since the upward trend is single digit percentages per year the slow money is probably not missing out on a really big party anyway.

[mrfeh]

Quote:

Originally Posted by UpQuark But I thought the point of DCA is conceding that prices go up and down and since market timing is not something people are good at, that the DCA method acknowledges the lack of knowledge and tries to improve the odds versus just throwing all the money in at once?

OldShooter answered your question perfectly.

Mathematically, lump sum is best, but that doesn't take into account your emotions.

If you are new to investing, go do a search on bogleheads for more info.

[OldShooter]

Quote:

Originally Posted by joesxm3 One strategy is to use Bollinger bands and RSI to detect when a stock is oversold. Also use Fibonacci levels to pick resistance points. ...

I'd go with a Magic 8 Ball. Less work.