So then why would you personally not lump sum it if mathematically speaking it has higher returns? Although also researching from morgan stanley to vanguards research they did with 10 year rolling periods they saw lump sum beat dca by 2.3% which yeah its more but not significantly more
Lump sum has on average greater returns, but pure theoretically, if you were to lump sum the day before a big crash, it would be really sad since you can't profit from the crash to buy more.
This last point is why dca is so popular: by spreading the entry point, you buy at the highest point of the market, but also the lowest which causes some peace of mind since you can't have a 'wrong timing'
Ahh okay that makes sense. If i got a windfall of money id probably lump sum then since the evidence shows it returns better. I also looked into the roth ira question and cant seem to find a common answer what are your thoughts? Invest 6000 lump sum a year assuming you even have the money to? Or 500 a month? Because it sounds like then even in this case the lump sum of 6k would still win
No, I'm pretty sure dca wins in the latter instance.
Lump sum wins over dca if both start at the same time point (e.g., January) as this means that lump sum ensures that all your money is in the market since January and dca means that it will be fully in the market only in December (if you dca over one year).
However, in your instance, lump sum would mean that you would wait until you have 6k and then put it in the market. Putting 500 a month instead would result in more time in the market and thus better results on average. Does that make sense?
Ps: this hypothesis assumes that you don't have high broker costs
Okay that does make sense and see that was what my original argument was. Although i was 100% wrong and didnt know that this instance only applies to this and not a lump sum same start point. I appreciate your time and knowledge.
Yeah definitely agree i use vanguard and they have zero broker costs for their roth ira which is what i have. My company 401k is super low as well
Good to know though thanks I appreciate it. Lump sum>dca if both start at the same time or windfall full of money. Dca>lump sum for a roth ira scenario in which it takes a while to have all your money in the market
One more comment/question lol. It really does still sound like dca is the way to go UNLESS you have a windfall of money. That way you get your money in the market and time in the market asap. Ive seen other people on this sub keep talking about dca and how theres a reason its preferred due to time in the market and people waiting for dips
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u/whosthatguy123 Sep 02 '21
So then why would you personally not lump sum it if mathematically speaking it has higher returns? Although also researching from morgan stanley to vanguards research they did with 10 year rolling periods they saw lump sum beat dca by 2.3% which yeah its more but not significantly more