Comments on: Why Dollar Cost Averaging Sometimes Works?

By: Direct Stock Purchase

Direct Stock Purchase — Thu, 08 Oct 2009 05:56:36 +0000

I agree with Plonkee and Customers Revenge. DCA is the best option available to me to invest my funds and so far it has worked out quite well for me. It is also a way for me to diversify my portfolio. For e.g. if I am able to set aside $500 a month to invest in individual equities, I would spread that across a few stocks rather than a single stock. I would repeat that every month, investing a smaller portion in several stocks versus a single stock. Contrary to a comment someone made, DCA does not always have to be more expensive (due to commissions). There are many companies that let you purchase stocks directly (without a broker) on a regular basis for no fees or minimal fees.

By: Customers Revenge

Customers Revenge — Fri, 02 Oct 2009 13:36:29 +0000

Plonkee is right. Dollar-cost-averaging is the only thing most people can do.

If you knew what the shape of the stock market would be like (the V) then dollar cost averaging sucks because you should have invested everything at the bottom of the V. But if you didn’t know what the curve looked like in advance and dollar-cost-averaged then your shares will cost on average less than the average cost of the shares over the same time period. That’s just because you buy more shares the cheaper they are.

By: Writer's Coin

Writer's Coin — Fri, 25 Sep 2009 18:51:07 +0000

In any conversation about dollar-cost averaging, I feel it's my duty to bring up value averaging. It's a little more sophisticated and nuanced that DCA.

By: plonkee

plonkee — Fri, 25 Sep 2009 17:54:12 +0000

It’s only really dollar cost averaging if you have a lump sum that you could invest all at once, but instead choose to invest in small lumps over several months.

Most of the time, people are investing from their regular income. It’s not exactly like they could choose to do something else – it’s regular investing, rather than trying to average over time.

By: MLR

MLR — Fri, 25 Sep 2009 07:08:27 +0000

I also dollar cost average but you need to remember to always look at the fundamentals.

I’m glad you raised this question about the data shown above because it was obviously created to fit an argument. I like when arguments are created based off of data :)

By: The Digerati Life

The Digerati Life — Thu, 24 Sep 2009 22:54:09 +0000

Of course, it doesn’t always work out perfectly — DCA works well when the end point is a rising trend/market. But so far, in the big scheme of things, the US stock market has only really gone up in a big way, despite the massive hiccup of the last decade. I had another article that showed exactly the technicalities of DCA which I linked to from that post. The strategy is not perfect but it’s worked so far if you had started this process when things were much lower (say when I did, in the early 1990′s). Also you’re better off having done this than having bought lump sum at the peak. You’d be up the creek then.

By: Early Retirement Extreme

Early Retirement Extreme — Thu, 24 Sep 2009 22:25:03 +0000

If the average price is lower than the end price, you win. If the average price is higher than the end price, you lose. It’s as simple as that. As you noted, you can always find data to “support” either argument. Dollar cost averaging is mainly promoted by those who make a commission on each investment and in particular wishes to do so on a regular basis.