What is the Advantage of Lump Sum Investing vs Dollar-Cost Averaging?
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- เผยแพร่เมื่อ 16 ก.ย. 2024
- What is the Advantage of Lump Sum Investing vs Dollar-Cost Averaging?
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As an lnvesting enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?
I think the safest strategy is to diversify investments. Like spreading investments across different asset classes, like bonds, real estate, and international stocks, they can reduce the impact of a market meltdown.
A lot of folks downplay the role of advlsors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for licensed advisors and came across someone of utmost qualifications. She's helped grow my reserve notwithstanding inflation, from $275k to $850k
This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? I'm in dire need of proper portfolio allocation.
My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further... She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
Just ran an online search on her name and came across her websiite; pretty well educated. thank you for sharing.
I put a lump sum into the market yesterday........ did not turn out to be good timing but good thing I'm in it for the long run
Big drop today.
Man that’s gonna mess with your head, but don’t worry you’ll be fine!!
@@JamesJamersonIsAGod As I checked Yahoo Finance in the morning I thought, "I couldn't have just waited another day huh?" haha
Look up JL Collins. He says that today's high might be yesterday's low. If you're in it for the long run, don't worry... You're gonna be ok. Heck, when you start to finally make withdrawals in 20+ years, you're gonna forget that you missed it by "1 day"
Remember that time in the market is better than timing the market. Stay invested and you’ll be okay!
One of dave’s more intelligent callers
Agreed.
Lol it’s a low bar.
Yes, but one of Ramsey's poorer responses.
Currently I'm just being smart and frugal with my money, I'm in the green 47% over the last 15 months and l've accumulated over $700K in pure profits from DCA’ing into stocks, ETFs, dividends and futures. However I’ve been in the red for a month now. I work hard for my money, so investing is making me a nervous sad wreck. I don’t know if I should sell everything, sit and just wait.
Nobody knows anything you need to create your own process, manage risk and stick to the plan, through thick or thin while also continuously learning from mistakes and improving.
@@devereauxjnr I agree, that's the more reason I prefer my day to day invt decisions being guided by a fin-advisor, seeing that their entire skillset is built around going long and short at the same time both employing risk for its asymmetrical upside and laying off risk as a hedge against the inevitable downward turns, coupled with the exclusive information/analysis they have, it's near impossible to not out-perform, been using a fin-advisor for over 2years+ and I've netted over 2.8million.
@@user-3456rtu I actually subscribed for a few trading courses but it didn't help much, been getting suggestions to use a proper financial advisor, how did you go about touching base with your coach?
@@loud9090 My advisor is the quite famous NICOLE DESIREE SIMON She has been making a fortune online worth millions of dollars in digital assets for a select few for years. Lately, these types of services have appeared that allow you to copy the results of the experts. She demonstrates how to copy it automatically using that system.
@@user-3456rtu Thanks for the info, i found her website and sent a message hopefully she replies soon.
In my opinion, when buying a mutual or index fund, you can go ahead and add a lump sum. If, however, you invest in single stocks, then dollar cost averaging may be the better way to go.
A bad news article could make the stock fall hard, and that's when you buy more. ETFs and Mutual Funds don't have these types of swings usually, unless there is a major crash.
Makes sense
This is the better answer
It doesn't have to be one or the other you know. I have some money, lump sum invested 50% of it recently, and plan on dollar cost averaging the rest alongside my monthly savings from my wages. Less risk than 100% lump sum, and likely more gains than 100% DCA.
You are intelligent.
I do similar, lump sum Roth IRA the beginning of each year then DCA contributions to my 401K & HSA.
great idea. It takes out the emotional factor in investing too because it's really best of both worlds. IE Invest $3000 in roth IRA beginning of the year. Rest of it, DCA until it reaches 6k Maximum
This is was the video we all needed. I thought about this before and I assumed that dollar cost averaging was the right way. But if u have that extra cash, just invest it all, and if u don’t then just buy shares consistently every week or month.
Agree,, I invested a lump sum of money when i sold my house to a stock and to my surprise it tripled my money in less than a year.
If you have the money available, lump sum is best for maximum time in the market. But the theory of DCA is why consistently contributing regardless of what the market does is a winning strategy in the long term. Bottom line is invest all the money you can comfortably afford at any given time
It shouldn’t have to be limited to these two options. For example, if you have a lump sum invest 50% off it now and DCA the rest. Its been 2 years and I’m still in the negative for an index fund. But since I invested more when it dropped I’m overall in the green.
Lump sum when you're young + when the market is down! That's the best time! If you have a consistent stream of money and the market is doing fine (like now) dollar cost is probably smarter for the average person.
@dolofonos If you do dollar cost averaging......where do you put your lump sum ?
@dolofonos Then they can do dollar cost until it crashes and lump the rest. It depends how much risk they can take. But mathematically you'll make way more investing $10k now for ten years then $1000 a year for the next ten years
If someone is so emotional that they must be silly and DCA to temper those emotions, thus diminishing their gains, then they should not be controlling their own money. They're not fit. They need help.
@@BPoweredLove True, but we are all human. And the emotions that are triggered when you watch your investments drop 30% are real for anyone. That's a lot to stomach when your $1M 401K drops to $700K within a few days/weeks.
@@BPoweredLoveexactly! Nuff said. Only advisors who would recommend this are just looking out for their profits and not losing a skidish customer, also keeping a customer long term!
The assumptions made in Dave's answer to this are huge!
It's not necessarily true that lump sum will generate a greater return. It all depends when you start. You could have a 5 year period in the market where it trades flat from start to finish. With lump sum, you would make nothing, but in that same time period, DCA would have made you money. That plus the psychological effect makes DCA a better option in my view.
If you have a large amount of money on the side it's smart to get a lot of it in the market, but you should leave some on the side to contribute as part of a DCA strategy. How you make those contributions is up to you. Personally, I like buying in every week, but that's just my personal preference.
adding to your 401k every paycheck is dollar cost averaging. when you retire you can invest the lump sum .
Dave is assuming here the market will trend up while you DCA. If the markets dropping while you’re DCAing you will do better than lump sum investing. So his point makes absolutey no sense. It depends on the state of the market. You can also have a hybrid approach where if the market is choppy like these days and you’re concerned of a correction you can DCA. If the market is doing well and a stock/fund dips, you can lump sum.
That's assuming you made a good choice (or choices) in what to buy. DCA in the long run smooths out volatility over the long haul. Your average investor can't afford to lose big chunks.
Dave sounds a little sick... wow, I clearly watch too many of these videos
Never too many
Variance. Research has been done, lump sum proves superior about 2/3 of the time, but higher variance of course. You could combine. Put half in now then average the rest over the next 12 months.
You are correct that lump sum investing is superior 2/3 of the time, but all that research assumes that you are investing the lump sum at the beginning of the period.... if you put that lump sum in at the middle of the term studied, then dollar cost averaging ends up winning.
And you need to assume you timed the market properly which no one can do
I normally dollar cost average but back in March 2020 I couldn’t help but to max both 2019 and 2020 Roth IRA’s when they DOW was at 19k
Beast from the East smart move
I did something similar. I know people who did the opposite and stopped 401k contributions in March, not because they couldn't afford, it but because they got worried about the stock market.
I did the same. I usually dollar cost average but I put it all in for the year in April.
Yep, I maxed both Roth IRA's back in early April and now those investments have made more than the ones I've had in the market for several years.
Invested in 5 digits in february right before the us politicians pulles their money out and the market chrashed. This one etf is still in the red today
Dollar cost averaging is applicable for most Americans. Lump sum is rare such as inheritance, lottery, or gain from real estate sale. Lump sum while mathematically more advantageous, it’s also more risky. I put in a lump sum in feb this year before the pandemic. Took 30% dip and just now about to be back to where I was (break even). If I did a dollar cost averaging, I’d end up having 10% gain.
@Dr.'sorders that's why dollar cost averaging works better because it's virtually impossible to time the market correctly twice; when you buy and when you sell.
Dave is 100% correct on this issue. Now, for those that have $0 today and want to start investing, it is better to DCA than save up a large sum and invest in one time, because the compound interest will serve you faster. A lot of people try timing the market, but what happens is they can never do that and lose money on the long run. Either way, even though large-sum is financially better, the tranquility you get by doing DCA even if you have a lot of money is worth more than the gains you can get just investing all at the same time.
if you think about it, monthly contributions to one's company plan can be considered a form of DCA...
@@perotal Yes, it does, but I prefer stock/reit picking.
perotal
I've had a DRIP program with Intel since early 90s.
So it works extremely well.
Great informative video. There is no clear answer for this. The market is so unpredictable.
The clear answer is keep your money in for the long term.
It’s not unpredictable. The Fed is pumping the market.
Brilliant. DCA is only good for investing on a regular interval, e.g. taking $200 per paycheck. If you have the money, just invest it now.
Lump sum!
Walk away.Set and forget
Come back in 20 -25 years for your nest egg.
Time in the market is better than trying to time the market!!! Who said that? I wish I had a large lump sum to invest all at once but I DCA because I have to wait until I get paid each month so I have the funds to invest (1st world problems, I know).
Studies have shown that dollar-cost-averaging is generally no better or worse than lump sum investing...except in circumstances when you had perfect good timing or perfect bad timing. Either method of investing will be fine most of the time.
I generally go big at the start and than buy the dips if the stock tanks
I'll tell you right now if anyone has $500,000 cash they're not throwing all that into an index fund all at once lol. I would bet money that they are averaging that in over time. In some cases a very long time. I would be far more concerned with protecting that $500,000 from loss than maximizing the return on its investment. As long as I got a reasonable return I would take the reasonable return and avoid any risk by throwing it all into the market all at once to get a higher return. DCA still provides a reasonable return while simultaneously reducing risk.
True!
I thought about this too.While the money is sitting in the bank waiting for you to invest every month it is getting eroded And over years too, until you've invested it all.
I love Dave - always learning 🙂
Great video, i definitely think this is a tough question
This is why I listen those who have done the research and calculations.
Imagine do a lump sum at nikkei index at april 1991 and until now (almost 30 years) with 0% return..
Agreed, even lump sum investing at the S&P 500 at the peak of the dot com bubble would be a terrible call. DCA is WAY safer.
If you kept the dividends reinvested it wouldn't be 0% return because the dividends would have averaged you in over that 30 year period. The problem is you had to wait 30 years to get a return on your investment. And you had to keep dividends reinvested during that entire 30 year period.
Depends how active you are and how often you’re willing to dread looking at your account. Your emotions should be considered over numbers and bottom line profit.
Both have their place. It depends on where the market is at the time of investing. If the market is at the top, especially like an all time high (ATH), then DCA is better. If the mariet is down say 15 to 20%, man lump sum will give you outsize returns.
Always invest the lump sum right away if you can. Your probability of a greater return is a lot higher if you invest the lump sum instead of dollar cost averaging. It’s all about time in the market.
Run some historical numbers. DCA has greater returns long term than LS.
@@osu122975 Think lump sum beats DCA up to 60% of the time.
@@8G00SE8 it’s all about timing and using technical indicators
DCA is much more efficient
I am wondering does this advice still stand now that uninvested cash could still be gaining 5% interest in todays market? Would Lump Sum still beat DCA if the lump sum was sitting in a 5% interest account, and you gradually invested that sum in the market each month?
Depends, if the stock is high I would not do a lump sum, i would DCA in as it will probably fall and you will end up with more shares. I use TSLY, QQQY, IWMY and YMAX. The divs pay my mortgage and vacations.
Great, I am putting this video on my watch list, investing in dollar is now!
Put a little in every week and when it tanks like Thursday put it all in on Friday.
Why not do both? DCA every week, and occasionally lump sum on big crashes
One thing about lump sum, is that as you are collecting the money, you have an automatic emergency fund in case there are surprise expenses.
You’re not supposed to invest until you have a full emergency fund anyway.
When you think market is too heated and it's unreasonable then do DCA if you think it's down and will rebound anytime soon then do lump sum.
Keep aside money and do dca and when you think your favorite stock is down a bit then put a little more.
So turns out 3~4 years from this video 1st option, lump sum all into market has won(Depends on what u invested in though).
Lump sum gives you a few extra dividends:)
There have been six 10-year periods since 1900 when equity
returns were negative or low (below 3%). Three of those 10 year periods
were negative. The most recent era of low returns was 2002-2011 where
the average return was 2.9% for the period. Although that would beat current savings rates, it barely beats inflation. My conclusion is that timing
and stock selection is important.
If you have a job that pays monthly or biweekly you have to dollar cost average. There is no way around it. Better to be in the market than timing the market. But do save some cash on the sideline just in case.
"emotional advantage" is really useful for something like the debt snowball vs avalanche, where saving a few dollars in interest is _nothing_ compared to the value of minimizing the psychological risk of quitting or relapsing... but when it comes to a responsible saver who's committed to putting all the money in sooner or later, does DCA outperform lump?
I follow a mixed strategy. Invested a lump sum which was about 65% of my savings. And then DCA only when market is down: 5%, 10 and 15%. In the meantime I’ve been making other savings with my work and I will invest them when the market will go down again in the next few months/years. I don’t know if this is the perfect strategy but at least it is working very well for me.
Personally I do dollar cost averaging since I'm doing it for the long term and can put it as a line item in my budget.
Does it make a difference that this guy is newly retired? I mean its one thing if your 30 and putting money in the market for the next 30-40 years - you can ride out highs and lows. What happens if this guy throws his money in and actually NEEDS it (medical issues?) in the next 3 to 5 years - when the market could potentially be way down - and he's not able to ride it out another 20 yrs for the market to come back up?
Orrrrrr...deep OTM SPY calls expiring tomorrow
James Moore ah a man of culture as well
Bear gang strikes again 🐻🏳️🌈
A true autist would lever up on a credit card advance, student loan refund, and Robinhood margin account. Then, make an offering to Lord Elon and YOLO on TSLA 1000 calls expiring tomorrow.
Great information and advice thanks !
Why simply not wait until the market is down and then invest your lump sum?
While I believe in lump sum investing myself and agree DCA is easier on the emotions, I think you missed the mark here. If you think the market will be in a decline in the near term then DCA is safer and the better option. If you believe it will go up as it historically has in the US, then lump sum is better. But lump sum when the future is gloomy may not be the best path.
Dollar-cost averaging isn't about "emotion," so much as about the idea that, rather than spend a fixed amount of money for a security, up front - at which time you may or mayn't be getting a very good deal (that is, you might not have valued a company well [or, at all] prior to purchasing shares thereof) - you'll end up paying less therefor in some instances, and more in others, ultimately (you hope) coming out having done well. Of course the caveat risk is, if you were receiving a good deal at the start, you've now lost some time-value of your investment.
Exactly. But given the market's general upward trend, wouldn't Lump Sum be better most years. Due to the current turbulence, I can see DCA. But had you DCA'd b/w 2009 and 2019, you would've missed out on the profits of massive market rise (depending on what your investment was).
@@colinm366, that's the counter-argument, of course: yes, lump-sum mathematically would be better, because the market "trends upward." But, if you place all your money in at what turns out to be the widest diameter of a bubble, you might do quite poorly. And, that's the thing: one never knows one is in a bubble - it's obvious only in hindsight.
What I've realized is that we're hung up on the "number of shares" as though we're buying cartons of Cokes 2-for-1 at Walmart. In the case of stocks, what you're looking for is the compounding of your money, NOT how many shares you have. Whether you get 100 shares for $100 or one share for $100, a 10% appreciation is still $110, no matter how many shares that represents.
Best thing is to lump sum invest with one of Dave's buddies
"...almost all of the calls" LOL
great explanation
Considering the overall market is at an all time high, and an election is coming up, I'd recommend chopping your total investment up in to 12 parts and investing it over the course of 12 months. Or 6 months if that sounds too boring. We are due for a pullback, which happened today apparently.
Irrelevant if he’s planning on investing it for 20 years.
@@033spaceboy You could take that approach too. There are plenty of studies that show that buying at market tops didn't really matter as long as you keep your money in over the long haul. I prefer to DCA and buy on the dips.
DCA every time.
S&P500 was about 3400 at the time of this call. Today it is above 4000
THX
There are plans that allow you to take a set range of the lump sum amount ($10-$50k), and the individual will still receive a monthly 75% joint annuity payment for the primary’s and spouse’s life. This will allow them to play both sides of the fence by having that lump sum directly rolled over to a traditional ira; while receiving a slightly reduced monthly annuity for the rest of their lives.
Hello, My fist time watch your channel. Thanks.
DCA does beat lump sum 3/10 times
please dont put all your money in the stock market all at once right now. It's clearly a bubble. Unless its a growth stock that you see a lot of potential in, its best to cost average right now.
You're attempting to time the market. Sorry. Doesn't work that way.
BadMannerKorea timing the market would be putting no money in. I’m saying buy less when the market is overvalued and buy more when it’s undervalued.
@@whatupdoe3623 You straight up claimed it's a bubble and not to invest a lump sum. You're attempting to time the market. It is statistically better to invest immediately in a lump sum.
Whatup Doe
That don't work with me. I'm not that narrow minded.
I'm the type that actually sit for hours researching companies to invest and know there's more to a stock than just the price.
Many on my list aren't even affected by a bubble.
Only thing I do close to timing the market is rebalancing and setting aside cash monthly for a crash.
I'm not touching my dividend paying stocks/ETFs.
BadMannerKorea since you know better, you should try to get in contact with Warren buffet and tell him to invest his 140B+ in the market tomorrow. Ima sure he’ll make you Vice President of Berkshire
I think this advice only apply to Nasdaq and very good mutual funds. There are investments and stocks that never goes back to their all time high. You could buy a big chunk of stocks from a company at $100 and could stay for 5 years trading under that so you are not making money plus your money is loosing value because of inflation. If you want to build a position it could take years you buy a stock for a $100 and if it goes down to $80 you buy more and your average cost is $90 so if it just goes back to a $100 you made a $10 per share.
Put half of it into funds all at once. The rest average out into stocks.
Which funds do you recommend at this time?
@@Jamedia66 that could be VUG for growth and SPYD for dividends. The idea is to get steady income and growth at the same time. But also to have the security that an individual stock doesn't provide.
So cool.
Why Mr. Buffet say dca into s&p 500
Hope no one listen to this advice @ 1:10 as I did early this year 2022. Should have DCA over a 12 month period 😢
INTERESTING
This is Actually Wrong. Lump sum is better than 12 months of DCA if and ONLY IF the market goes up every month (which it never does).
I cant afford to buy shares in a lump sum so i use dollar cost averaging. Sure I can save up money for a few months and go all in but that takes time and my money is not being used to its full potential in my savings account
I have more than $75K waiting to be deployed. I am waiting for a substantial drop in ETF’s and probably will go all in or at least half in one day half in another. Probably up until the election we will see this.
where is the 75k right now ?
BRIAN ANDERSON vangurd money market
I’ll do dca with my kid’s money, and lump sum with my father’s money:)
If you lump sum, then the only potential investments from then would have to be dollar cost averaged and over time. Otherwise you either magically get many lump sums of money, or you are saving money for a long period of time that is not being put in the market...making money. So this is only relevant when you somehow receive a lump sum, otherwise you are alway cost averaging.
Watching this in 2024, I really hope this gentlemen did a lump sum during the covid lows! haha
DCA is when you’re holding cash and choose to invest it in regular intervals instead of all at once. If you’re just sweeping the rest of your paycheck into your brokerage after expenses then that isn’t really DCA. Same thing with biweekly 401k contributions. But I still choose time in the market over DCA.
Sounds like someone should stick with Realestate. And lump vs DCA has a lot to do with how long it takes you to invest the sum vs all in. A year who cares pick the spots
Incredibly helpful!
If he's at retirement age then just invest lump sum. He doesn't have time for DCA. Plus he should be investing more in safer funds like bonds so the risk isn't much anyways. DCA is beneficial when you're young and have decades to invest and want to protect against a downturn.
He should throw it all in. If he invests right within 5 years he has the potentially of tripling his investments
3x?! Historical returns show you double in about 10 years.
webfreakz history is stupid.
@@phazon100 so is projecting unrealistic stock markets returns.
What are you investing in and can I get in on it? 3x in 5 years is 24.6% annualized. (This is sarcasm, I know 24.6% annualized isn’t happening without significant downside risk, like some 3x SPY)
@@joeregan63 I doubled my money on airlines, banks and restaurants/chains. Back in march when everything collasped I started throw couple hundred dollars a week into the market
Given that you have invested in profitable companies..
Right now is a really sketchy time to invest. Invest slowly while the market is still dipping
Stop being worried about timing the market Just put the money in there. It's always a sketchy time to enter the market
@@ClaxtonBay123 Right. There's always 24 good reasons why the market "should" go down.
With that mentality it will be always a sketchy time to invest.
Looking for advice from people in the UK. I'm new to investing and I want to invest £16k into an index fund (£4k has already gone into a LISA) before the end of the tax year. Should I wait for a dip in the market and then invest the full amount or should I start now and pound cost average it in the remaining months until April 2021?
i’d work out how much you’d need to invest monthly from now until the new tax year and just invest that amount monthly
I don't have a lump sum. I didn't inherit any money. I don't have any properties. I am 26 yo. I just have a job. For me, only rupee-cost averaging works. I don't have a lump sum. But I invest 1/3rd of my income. I feel like I should buy my dream car. It's tough to control emotions. But I am doing it anyway. In India, we don't live independently. After we start working, we start taking care of our parents. So now, I am the bread earner of my family. I have a mother to take care for who has huge desires and who wants to keep up with her friends buying big expensive cars. It is tough saying 'no' to her. No matter who the woman is in your life, may it be a wife, sister, daughter, girlfriend, even mother, they are hard to convince when they have desires.
Your wise convincing people to do or not do is stressful!!!
DCA is honestly pretty stupid if you're investing for the long term. Get the most money in for the longest possible time if you are confident the funds you'll be investing in will go up.
This is obviously assuming you are looking at investing a large sum, and you aren't periodically setting aside income.
What about DCA + lump sum during recession?
I mean if you have money during recession of course. That’s the thing about recession: a lot of people don’t.
If someone is so emotional that they must be silly and DCA to temper those emotions, thus diminishing their gains, then they should not be controlling their own money. They're not fit. They need help.
Fear is the mind killer
Dollar Cost Averaging is mainly a tax calculation system. When you sell you elect to pay taxes based on dollar cost average paid for those stocks.
Its not really a good way to plan your investing of a lump sum. Its mainly a way to calculate the profit when you make a lot of little investments over a long time.
.
Grossly simplified... see a tax accountant:
This is just to give the basic idea behind what it means to dollar cost average for tax purposes.
.
Lets say you start buying into a mutual fund $100 a month.
Initially you are getting 1 share per dollar.
over the years the price per share grows to $100 a share, but you are still putting in $100 a month.
Its 30 years later. How much do you say you paid for 100 shares that you sell for $10,000?
.
Lets assume the average you paid per share over the 30 years comes out to $22.50. You can use the dollar cost average value and say that is what you paid.
Now, you are committed to using dollar cost averaging when you sell any of the remaining shares in that account and claiming the sale for your income tax.
.
If you don't dollar cost average, you have to track which shares were bought at which price and while you could say you are selling the most expensive first and pay nearly no tax, you still have all of those cheap shares that will cost a lot of tax when you sell them.
.
Dollar cost averaging is simpler overall and often saves you money on taxes.
Yo still have some "interesting" calculations if you keep buying in the same account as the one you are selling from.
As you buy more at the new higher price you are increasing the dollar cost average of the shares in the account. That can save you money at tax time.
Hey I am not a financial adviser, I thought most countries use a first in first out system for tax calculating. They do not let you just average what you paid for the shares. In your example if you sell 100 shares for $10,000 you go back to the first shares you bought at $1 and that's the cost basis for those shares.
I think everyone is missing the point. Whether you DCA or lump sum makes no difference as long as you get results. What matters is that you reach you financial goals within your planned target date. For example, you might plan to save up $100,000 within 4 years. If that's your goal that means you must have $25,000 per year to stay on schedule. As long as you stay on schedule to meet your goal, that's all that matters. Regardless if it's DCA, lump sum, old fashion savings, or sell an item. Whatever gets results. Again, as long as you complete the goal by your target date your good. So you must determine you goal and target date and then work to complete that goal. Investing is just one of many tools used to help you achieve your financial goals. Either way what matters is you achieve your goals. So the question is what are your goals?
buy high, sell low
Dave talking about dollar cost averaging? This should be interesting
😂
The whole point is, for instance over a year, twelve individual payments *can* end up earning more for you than one front-loaded lump-sum, if the lump-sum turns out to have been loaded into an over-priced stock. Ramsey seems to bounce back and forth in his response to this question.
But with DCA, there's an element of predicting the market. You're basically saying, "I think I may get a better stock price in the future than now, so I'll invest monthly" which may be true, but that's riskier as you may be missing out on profits if the market maintains its upward trend. The market (most years) is up at the end and had you DCA'd you would've lost out on profit. You might get profits one year b/c of a down market, but most other years you would've missed out on getting your capital in at the beginning. It basically comes down to the risk of getting a better stock price (which you might!) VS the safety of the general upward market trend yearly. DCA isn't wrong, but lump-sum is a safe way to invest.
Of course, it all depends on what you're investing in. I say the above w/ Index funds in mind.
(By the way, despite the obvious brilliance of my comment, this is NOT investment advice. Do your own due diligence.)
Sorry, but Dave is wrong at the end. In a risk based investment, you most certainly can fare worse putting a lump sum in when the market is high. Granted, you'll have more dividend income.
You are wrong. In practice, both flat and risk-adjusted returns are lower over a few years using dollar-cost averaging as opposed to lump sum investing. You can prove that when applied to the S&P500 with a simple spreadsheet using monthly or weekly installments. The only way to break this mathematical fact is by cherry-picking the exact market highs after the fact - which is obviously an impossibility to perform consistently in real life.
@@FXPhysics If one intends to hold that investment for years, the returns of sticking a lump sum in on day one, vs spreading it into four quarterly or 12 monthly sums over year one, are going to be negligible.
The thing is, the market is at an all time high, the near future is uncertain, and the caller is retired, so in this particular situation, I'd hedge my bets and DCA the money.
This didn’t age well. Dollar cost averaging outperformed lump sum investing in 2022.
FIRST! It’s 6am in Korea 😆
Ok?
How are you?
ROK or DPRK
Chris_the_Numismatic have you seen the story about the couple in Ohio that found the money in the suitcases in the basement ceiling.?
Shut up. All your comments ammount to spam. You never have anything interesting to say. Get a job.
Dollar Cost Averaging is for gamblers who don’t want to admit it. You’re supposed to calculate real volatility and compare it to what Wall Street values the stocks volatility at. Buy now if the volatility is undervalued and buy later if the volatility is overvalued. There’s no scenario in which you’re dollar cost averaging logically, if you knew what you’re doing you’d buy all at once. Check out what Warren Buffet said about it too.
I think it's a misunderstanding when people ask about dollar cost averaging. I think most people do not have a lump sum to put in to begin with. So dollar cost averaging just simply means putting money in at a steady clip and that's it. It's just basic investing
he didnt say to do that after the market rises 63% in 6 months.
ClaxtonBay123 You’re not describing Dollar Cost Averaging, you’re describing contributing monthly into a portfolio which is what everyone should do. Dollar Cost Averaging as explained by the first Google Result: “Dollar cost averaging is an investment strategy that aims to reduce the impact of volatility on large purchases of financial assets such as equities.” When you DCA, you acknowledge you have the money for a lump sum, but would rather reduce volatility by spreading out the purchasing of the stock.
If you invest the surplus of every months budget into the stock market, you are no DCA’ing, technically you’re doing lump sum purchases monthly, as DCA is detached from asset price and just depends on the numerical amount of shares.
Whatup Doe That’s when you come to the calculation that the volatility is overvalued and that the SMA is on a downward trend.
I don't usually say this on youtube comments but actual good discussion here on the difference between monthly investments vs DCA.
Should I buy individual stocks?
He will advise no...I advise yes
Yes, however much you are comfortable risking
Dave will tell you no, but there's absolutely nothing wrong with taking 10-20% and picking individual stocks. Even Peter Lynch recommended it, and he created the best performing mutual fund in the world. He's a legend in investing, and if he's suggesting people to pick some stocks while being smart about it, I'm going with him over Dave.
Stocks is just gambling and there are huge risks. If you want to invest properly, I would pick an industry, pick a product segment, and research all competitors, all their offerings, and understand how each one is superior or inferior. Once you understand this you will have huge confidence in long term growth or decline of the company. I average 25% returns every year and I never worry when the market goes down because I understand the companies I invest in. Don't invest in companies you don't understand
@@Shane-fh4uu Your comment doesn't make sense. You started off saying it's gambling, but then stated you do research, you understand the companies you invest in, the competitors etc. It's not gambling if you're doing that. Also, I highly doubt you make 25% long term. Peter Lynch made 29.2%, and you're telling you made 4.2% less than the greatest investor of all time? Yeah. Right.
There’s too much broke brotha in law opinion about dollar cost averaging . I’m writing on behalf of Dave Ramsey