# DCA vs. Lump Sum



## Cal (Jun 17, 2009)

Great article via CC's weekly roundup on his site.

http://moneywatch.bnet.com/investin...veraging-does-it-produce-better-results/3026/


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## CanadianCapitalist (Mar 31, 2009)

The findings that lump sum beats DCA most of the time makes intuitive sense. In any case, there is no guarantee that just after one stops DCAing stocks won't fall sharply. It will be interesting to do some research on Canadian data.


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## dogcom (May 23, 2009)

Lump sum is of course the best in theory but often doesn't work that way.

For example as you were younger how much time did you waste holding non-performing mutual funds or spend years going no where with your investments. At least if you were dollar cost averaging you got a little return hopefully from the ups and downs but more importantly you were not all in going no where while you learned about investing. 

Also if you get trapped in one of those secular bear markets you may get timed out or you tapped out before the potential could be realized. There is just to many moving parts going on in people's lives to get trapped by the investment industry trying to get your money into the market.


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## MoneyGal (Apr 24, 2009)

CanadianCapitalist said:


> The findings that lump sum beats DCA most of the time makes intuitive sense. In any case, there is no guarantee that just after one stops DCAing stocks won't fall sharply. It will be interesting to do some research on Canadian data.


This is sort of what you want:

http://www.captus.com/information/images/wealth-log-flyer/WealthLogicSampleChapter.pdf

Derived from this paper: 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=148754 (not Canadian data)


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## andrewf (Mar 1, 2010)

I think (Dollar) Value Averaging makes more sense to me, and is more interesting. DCA seems like a rather blunt tool.


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## Guigz (Oct 28, 2010)

The article assumes that you have a mountain of cash on the side, ready to invest. For regular Joe Blow, it makes sense to DCA because they have a certain amount each month to invest. 

In this case, it likely makes more sense to invest the money as it comes (ie DCA) versus waiting to have a large lump sum to invest it.

In a rising market, lump sum is better. In a falling market, DCA is better. Are we in a rising market or a falling market? If you are able to predict this, you are probably already rich and do not need to worry about DCA versus lump sum. Ergo, one should do what one feels comfortable with.


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## dogcom (May 23, 2009)

In a rising market lump sum could be worse if you are in the later stages of that market. In fact most people are comfortable going in when markets are good the only problem is that they do so when the market is in the late stages of a bull run. 

Track records 10 year return and the like are great at the end of good runs or bull markets and they make a for a great selling tool to the public.


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## m3s (Apr 3, 2010)

I've been reading investing theories for awhile now. I think they all have their flaws, and there is absolutely no general "ideal" way to invest

I do a mix of all strategies. A strict DCA can be too blind and passive imo and it may also incur a lot more fees. Investing $200 on the 30th of every month at $30 fees when for example there is high volatility you're probably paying a higher price than you could have easily gotten.

A huge lump sum is also a bad idea imo. Nobody knows when the perfect time is and investing everything at once is very risky. I prefer to save until I see decent opportunities. When I find that opportunity, I don't bet the farm on it either. Patience and flexibility are key imo


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## Toronto.gal (Jan 8, 2010)

mode3sour said:


> I do a mix of all strategies.


I have not read all links yet, but I will when I'll have more time [thanks for posting them].

I could not agree more with the above mentioned statement!

Many experts indeed admit that lump sum is superior, but as this is a riskier move, they also say that it should be done only for long term investments and not everyone has a long term horizon, which I consider 10+ years at least.

I don't know how many times I have heard that as long as one has time, all should be ok., but it's not as simple as that and that statement actually annoys me somewhat. 

My own personal example: as a rookie a couple of years ago, I invested a large sum of money all at once for a single stock thinking I had captured a price close to the bottom [I was the expert rookie, **SIGH], but only to see it lose 1/2 its value [mode, I'm not talking about RIM]. 

Sure I'm many years away from retirement and sure the stock will recover [pretty sure anyway], however what I realized is that DCA potentially [not always] allows for *much higher share accumulation*, so I completely agree that a mixed investing strategy is better in some cases [depending on the stock & type of market of course]. Anyway, it was a rookie mistake which taught me a valuable lesson. 

Below is the approach I took year 1 and year 2:

*1st year: lump sum* -1000 shares x $19 = $19,000

*2nd year: DCA* - 1000 shares x ACB $12.7225 = *$12,722.50* 

250 x $13.01 = $3,252.50
250 x $12.82 = $3,205.00
500 x $12.53 = $6,265.00
Total: = *$12,722.50*

Same stock, same # of shares cost me $19,000 year 1; *$12,722.50* year 2 

Had I been wiser in year 1, I would have known that lump sum had not been the right investment method for that particular stock and time. My consolation is that I averaged down with profits. 

In this type of market volatility when nobody knows what financial tsunami is coming next, DCA is my preferred strategy.

- *In bull markets,* DCA produces lower returns [stocks cost more, hence difficult to buy/accumulate shares].
- In bear markets, DCA produces higher returns [stocks cost less, hence easier to buy/accumulate shares].

I have only been doing this for a couple of years, so I don't have my own personal 5, 10 or more years to compare results, but we each need to find the investment method that works best for us & not be afraid to experiment & mix things up a lil, but only AFTER one is experienced enough. If you only try one strategy, how do you know it is the best? IMHO, the less riskier approach is best for beginners.


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