I would argue that if a person is investing every two weeks or even monthly when they get paid, that is lump sum investing. DCA only makes sense in clear bear markets but even then, nobody can predict the bottom so just get your money in early and enjoy the ride 🎉
Dollar Cost Averaging (DCA) is about reducing risk, not about making a higher return. Investing a lump sum during a bear market is highly likely to grow more than DCA, since you get your money invested before the market recovers. DCA only works in flat markets that bounce up and down for quite a while. The stock market rarely does this for any length of time.
@@EdRempel One can not divorce the concept of risk from returns, unless we're talking about the risk-free rate of return like government treasuries. When investing, the risk to the investor is loss of capital, which is a negative return. The opportunity cost one pays with DCA is also a risk -- of missing out on gains. Yes, DCA is about reducing the risk of negative returns over the very short term (less than one year). However, the S&P has positive returns in roughly 3/4 years. When you look at rolling returns, positive returns exceed 90% at 5 years, 97% at 10 years and 100% at 20+ years. If you are investing for any reasonable amount of time and you have a chunk of money to invest, the greater risk is wait and investing "bit-by-bit". History has shown that you are more likely to make less money, which is a RISK.
Hi Ed, thanks for this video. What you've explained also seems to apply to worrying about sequence of returns; ought not to worry if focused on the long term.
I would argue that if a person is investing every two weeks or even monthly when they get paid, that is lump sum investing.
DCA only makes sense in clear bear markets but even then, nobody can predict the bottom so just get your money in early and enjoy the ride 🎉
Dollar Cost Averaging (DCA) is about reducing risk, not about making a higher return. Investing a lump sum during a bear market is highly likely to grow more than DCA, since you get your money invested before the market recovers.
DCA only works in flat markets that bounce up and down for quite a while. The stock market rarely does this for any length of time.
@@EdRempel
One can not divorce the concept of risk from returns, unless we're talking about the risk-free rate of return like government treasuries. When investing, the risk to the investor is loss of capital, which is a negative return. The opportunity cost one pays with DCA is also a risk -- of missing out on gains.
Yes, DCA is about reducing the risk of negative returns over the very short term (less than one year). However, the S&P has positive returns in roughly 3/4 years. When you look at rolling returns, positive returns exceed 90% at 5 years, 97% at 10 years and 100% at 20+ years.
If you are investing for any reasonable amount of time and you have a chunk of money to invest, the greater risk is wait and investing "bit-by-bit". History has shown that you are more likely to make less money, which is a RISK.
Hi Ed, thanks for this video. What you've explained also seems to apply to worrying about sequence of returns; ought not to worry if focused on the long term.