Why Dollar Cost Averaging IS NOT the best way to Invest (DCA)
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- Опубликовано: 14 окт 2023
- Are you tired of hearing that Dollar Cost Averaging (DCA) is the holy grail of investing? In this video, we're here to challenge that notion and explore why DCA may not be the best way to invest your hard-earned money. Dollar Cost Averaging is a strategy where you invest a fixed amount of money at regular intervals, regardless of market conditions. While it offers a sense of security, it might not always be the optimal approach for your financial goals. We will be looking at several research that have comprehensive data in terms of the returns and risks of investments using dollar cost averaging and lump sum investing.
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Hello, hello, hello! After a little hiccup of the change of my editor plus school holiday overseas travel, I'm finally back! Have you taken advantage of the recent dip of the market? 📈 Sign up with Pearler for FIRE to get $10 brokerage credit pearler.com/invited/IRENEZHU
So I made this mistake and now I am basically Nancy from your scenario, sitting mostly in cash instead of invested. About a year ago I had a substantial super amount sold down to cash when the managed funds they were in were dissolved. I planned to DCA this cash slowly into the market (index funds) but I procrastinated as after the first DCA of around 10% of the balance, the market just kept going up and so I waited trying to wait for a better entry point. Flash forward to now and I am still sitting on 90% in cash and the market has moved up so much that now I don't want to do a lump sum as it seems we are at the top of the market. And of course I have missed all the gains I could have made.
Interesting video. thanks for posting. I think the reassurance is that for people who DCA by using what's left of their salary after monthly expenses, we are doing the most optimal thing we can (aside from if we could magically time the market perfectly)
Trying to time the market isn't my style. I don't have that many active brain cells left, Lol. Your spreadsheet really opened my eyes. I can't believe the spread was so low. You can DCA daily, weekly, bi-weekly, monthly, or even yearly. DCA protects us from our own emotions.
DCA does protect us from doing 'silly' things driven by our emotions. Thanks for stopping by!
@@IreneZhu roger that. Thanks!
I’m just a regular shmo with a monthly salary. No lump sum windfalls to splash about. I’ve taken a hybrid approach.
I’ve automated my monthly DCA contribution into my passive growth oriented diversified ETF core - it is set and forget. But I attempt to buy the dip when I have some spare money contribute to an active satellite investments. I probably wouldn’t bother with this “buy the dip” effort if the ASX was generally rising.
That's the essence of passive index investing - set and forget! All the best to your wealth-building Rob!
This is taking DCA out of it’s intended context. DCA works (and practically speaking, is the only way) to periodically invest out of periodically received income. That’s entirely separate from investing a lump sum, for which immediately putting the entire amount at work in the market is the superior and rational approach.
Hi Irene, great videos. I am new to investing in Australia and your videos have provided me a great starting point to invest. Could you make a video on if we have additional $1000 every month, does it make sense to park this in an offset account vs investing in an ETF ? Specifically when interest rates are around 5.5% mark and the interest from Offset account is tax free. Thanks in advance.
Thanks for your time to watch! I'm planning a video on that with the maths. However I can tell you now that paying down the mortgage earlier can guarantee to get you that 5.5% return which stock market may not in the short term.
@@IreneZhuthanks for the honest feedback . Really appreciate it !
Irene, i understand your point, but this point of view presume that Perfect Market Makers have only sp500 for investing, and in real world, we have others investments when we dont see a good opportunity in stocks or sp500, like treasure etc. This kind of opportunities generally dont caculate in this kind of study. I make Buy the Dip and always have opportunity in various kinds of market. The returns is much higher then this kind of study. The dca is the best strategy for most people, only this.
Hi, thanks for your comments. Totally agree with you. As I have mentioned, I don't think DCA is even suitable for individual stocks. It's generally used to catch the average market return - board market index funds.
l like your video, i watched 5 times ❤❤
i invested 10k a week into a broad based etf over a year to reach 500k. lump sum is for trading. I've made plenty of money, enough to retire comfortable using DCA. Totally disagree with lump sum. Investing is so simple my kids do it but adults will never do it because it is simple. Peace.
Tell me about it!! I just recently started going on 2 months ago and I try to tell my friends about it but they ain’t tryna hear it smh
Great content
Thank you for stopping by!
DCA is the only time I got 8 out of ten! For me, that's a game-changer!!!!!!!!!!!!!!!! We still don't know what the hedge funds and big boys are using???????????????
There is an implicit assumption made here, which is that the investor has the lump sum in their hand. Most people who do DCA do not have that lump sum in their hands, and that is why they are doing DCA. If I got a large sum of money, I would still spread my investments over time, but I would invest more aggressively.
You are right, the headwind was the assumption - then what would you do.
DCA must cost a lot in transaction fees
Depends on your broker's fee structure. CMC charges no brokerage if the transaction is below $1k. On the other hand, some brokers charges commission-based fee (instead of a fixed fee) above a certain threshold, which means you'll incur a pretty huge costs if you invest $40k in one go like the example provided in this video.
I use the companies broker. I don’t know the time of transaction, but I know it’s 4 or 12 times a year. Zero cost. I do it with 10 companies.
I use CMC as well, but they do charge a SELL $11 brokerage fee, so you can see it as $5.5 per buy & sell transaction.
@@IreneZhu That's probably an oversimplified way to see how CMC's fees work because you wouldn't necessarily have the same number of buy and sell transactions in your investing journey.
In any case, when it comes to DCA, your SELL brokerage fee is rather irrelevant - you are DCA-ing your purchases, not your sales.