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> It would help to know how large an investment we are discussing. In
> your case, it sounds like you are "forced" to DCA. As you make the
> money you invest it. You are not sitting a large pile of cash that you
> are slowly integrating into the market. If that is the case, you have
> no choice but to DCA (at least to some extent).
Yes, my point really was that most people are forced to DCA as they do
not have a big pile of cash. In the end, my question (or now it's not
really question but rather a point) is what is the optimal investment
strategy for the average investor. In most cases where a workplace
account is in play there is not much choice in the matter -- the
employer routes a certain percentage of the gross income to
investments each time the individual gets paid. This is DCA whether
the investor likes it or not and is optimal in that the amount the
individual has to invest is indeed invested as soon as it becomes
available, the pros/cons of DCA notwithstanding.
Then, there is the case of an IRA/Roth IRA where there is more choice
in the frequency/amount to invest. What I suppose the article Joe
Taxpayer quoted is saying is that the best way to invest, if the
individual had the funds at the time, would be to drop the entire
maximum allowed contribution in the market at the beginning of the
year. This would minimize the cost in an ETF as there is a single
transaction. I can't imagine that Joe would advise to follow this
strategy is the market is at a 52 week high at the time, though.
m...@g...com wrote:
> Then, there is the case of an IRA/Roth IRA where there is more choice
> in the frequency/amount to invest. What I suppose the article Joe
> Taxpayer quoted is saying is that the best way to invest, if the
> individual had the funds at the time, would be to drop the entire
> maximum allowed contribution in the market at the beginning of the
> year. This would minimize the cost in an ETF as there is a single
> transaction. I can't imagine that Joe would advise to follow this
> strategy is the market is at a 52 week high at the time, though.
Why not? Joe doesn't seem to be the market-timing type.
-Will
> m...@g...com wrote:
>> What I suppose the article Joe
>> Taxpayer quoted is saying is that the best way to invest, if the
>> individual had the funds at the time, would be to drop the entire
>> maximum allowed contribution in the market at the beginning of the
>> year. This would minimize the cost in an ETF as there is a single
>> transaction. I can't imagine that Joe would advise to follow this
>> strategy is the market is at a 52 week high at the time, though.
>
>
> Why not? Joe doesn't seem to be the market-timing type.
>
> -Will
Right Will. MJ - the link earlier in this thread contained seven further
links to articles all concluding the same thing. My acceptance of their
conclusion doesn't change based on the market being at a high, because
as Will offered, that suggests market timing. When one of my clients
found herself with a lump sum to invest, I quickly had to accept the
fact that she felt similar to hoe you appear to feel, that some how
there's more risk at such a high. Knowing when to give up, we invested
the money about 5% at a time over a two year period. Look at a long term
graph of the S&P. She missed much of the move from 1996-8. Most of the
80s and 90s had the market at a 52 week high, for whatever that's worth.
JOE
JoeTaxpayer.com
>I quickly had to accept the
> fact that she felt similar to hoe you appear to feel, that some how
> there's more risk at such a high.
I suppose it's again a question of the individual strategy. If one's
strategy is to buy and hold for the long-term versus trying to time
the market then I suppose it's a lot less counterintuitive to invest
as much as one has to invest regardless of where the market is at the
time. A lot of the literature talking about why not to invest when
the market is high seems to be written by and for 'professional'
investors who probably change positions more frequently in week then I
do in 2 years.
On Jul 23, 11:35 am, m...@g...com wrote:
> I suppose it's again a question of the individual strategy. If one's
> strategy is to buy and hold for the long-term versus trying to time
> the market then I suppose it's a lot less counterintuitive to invest
> as much as one has to invest regardless of where the market is at the
> time. A lot of the literature talking about why not to invest when
> the market is high seems to be written by and for 'professional'
> investors who probably change positions more frequently in week then I
> do in 2 years.
What is your time horizon? If you plan on leaving this money invested
for a long time, you should have much less concern for the markets
highs and lows. Even if it falls right after you invest, it should
recover given a long enough time horizon (past performance not
indicative of future performance yada yada...). Many of the tech
investors of 2000 that lost 1/2 of their investment have since
returned to their original levels (or better). If you need the money
in the near future (2-5 years) then maybe DCA is best anyway. It will
mitigate an early market downturn. But for long term investments,
don't worry about it.
As for the "forced" DCA and how frequently you should purchase topic:
As I said above, it depends on how much you plan to invest. I try to
keep transaction costs between 0.5 and 1%. For $10 transaction costs
this means I don't invest until I have between $1000 and $2000 saved
up. If you can save that much in a week, then invest every week. If it
takes six months to save up that much then purchase every six months.
There's no universal answer, its a function of investment amount and
transaction costs.
> But for long term investments,
> don't worry about it.
>
> There's no universal answer, its a function of investment amount and
> transaction costs.
I completely agree on both topics. I have learned something new as in
the past I have invested quarterly in my and my wife's Roth IRAs
believing that doing so was preferable to investing all at once or
less frequently. Now, I will attempt to switch as much as possible to
ETFs to lower costs (not that most of mine are high, anyway, but even
small differences matter long-term) and invest perhaps twice per year
as close to the beginning of the year as possible to have the funds
invested the longest possible and also to minimize transaction costs.
These are all retirement funds for maybe 25 years from now.
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