1. This post at William Bernstein’s website gives the evidence Why not to DCA over 12 months by Bill Jones.
2. If you don’t want to be “all in” then the solution is to be “less in” not to be “all in later on”.
see the difference?
if you don’t have the willingness to take the risk now, why would you have the willingness to take the risk later?
3.
In a September 1995 interview with Worth magazine, [Peter] Lynch put it this way: “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”
4. understand the risk you take no matter what portfolio you decide to hold:
5. make sure the allocation you hold matches your need, ability and willingness to take risk:
How much risk do you need to take: https://www.cbsnews.com/news/asset-allo … -you-need/
How much risk do you have the ability to take: https://www.cbsnews.com/news/asset-allo … -you-take/
How much risk do you have the willingness to take: https://www.cbsnews.com/news/asset-allo … tolerance/
How to deal with conflicts between the need, ability and willingness to take risk: https://www.cbsnews.com/news/asset-allo … ing-goals/
6. Whether it’s better to invest gradually or all at once, the past has shown it was better to lump sum 2/3rds of the time. It’s also true that once you settle on an asset allocation you’ll be holding that amount of risk at all time so you’re not just taking risk now investing the money, you’re always taking that risk once the money is invested in that allocation. Does that make sense? Here’s another way of thinking about it (DCA is dollar cost averaging so gradual as opposed to Lump sum investing):
From Larry Swedroe:
Here is another way to think about DCA. Assume that staying fully invested in equities is suboptimal, meaning you should sell all your equities and then DCA back into the market. At the next investment period you have some money in the stock market already. While you planned to periodically reinvest in the market, you also determined that staying fully invested is suboptimal. You run into this difficulty: Do you continue to buy equities, sell your existing holdings, or do both? Logicaly, DCA cannot be effective…While DCA is not an optimal investment strategy, it has value when facing the “lesser of two evils,” that is, when an investor simply cannot “take the plunge” and invest all at once for fear of what could happen to the stock market. Fear causes paralysis. If the market rises after they delay, they think, “How can I buy now at even higher prices?” If the market falls, “I can’t buy now. That bear market I was afraid of is here.” Once deciding not to buy, how do you decide to ever buy again?
The Only Guide You’ll Ever Need for the Right Financial Plan, by Larry Swedroe, page 182, appendix B
DCA makes one feel good because if they have some (but not all) invested and the market goes up, they made money (just on what was invested, not all). If the market falls, they feel smart because they didn’t lose more money (because it wasn’t all invested).
Larry says:
Investors and advisors do not always base decisions on logic or evidence. Emotions, such as fear often play a far greater role in decision making.
7. Once you make your plan write an IPS and review it regularly to remind yourself why you’re doing what you’re doing so you don’t think you made a mistake just because something happened in the markets.
Does that help?
