Show HN: Simulate dollar-cost averaging in any mix of stocks
simulator.tryshare.app
simulator.tryshare.app
Many poeple seem to be saying they tried it the simulation out with broad ETFs, and that's a good use case.
But I think many investors advise against DCA, because it results in you increasing expure to companies in trouble, going into bear markets or even bankruptcy. So for the riskier single stocks at least this seems to have a lot of survivorship bias.
If we include some compaies that have done very poorly or gone bankrupt you would get a better picture of the effect of following this plan for individual stocks. You never know!
It is true that investing all at once, rather than DCA, you also lose 100% in a bankruptcy, but "dollar cost averaging" seems to imply that buying at the lower prices (and thus bringing down your average price) is the benefit of the approach. In fact it is sometimes the main danger.
Positive, you are averaging out the risk by spreading out your purchases and averaging into your position.
Negative, time in the market beats timing the market, therefore you are better to have all your money you intend to invest in the market right away so you can enjoy appreciation, dividends etc
If you have a large lump sum to invest it can be better to buy in one go or in a shorter period. However if you earn money over time and look to invest, it makes sense to DCA each month you receive your salary rather than waiting to time the market.
NFA DYOR :)
It is still time in the market over timing the market, as long as the withdrawal date is far enough out into the future.
The real value of investing at a young age is not compound interest and having another 5-10 years of time with part of your money in the market. For most of us our earning potential will keep going up until at least our 40's, so the number of dollars you have later will swamp whatever you can save now.
The real value of starting at 25, 24, 23 is that you only have a little money to invest, and when you lose it, it will subjectively hurt more. If you wait until 30 you'll be gambling a larger pile of cash without those hard won lessons to keep you out of trouble. The money you invest at the beginning increases the effectiveness of the much larger pile of money you can invest 5 years in.
If you read enough personal finance articles, aimed at real humans, you will start to get a feel for the way in which finances, like dieting or time management, has a much larger psychological factor that the objective bean counters dismiss as if the math is all that matters. What matters most is you.
I've lost some money on stupid investments (buying individual tech stocks last year, buying put options right as 2020 downturn hit its v shaped recovery)
I'm just glad that the amount lost is in the low thousands, not tens of thousands.
If you want to reduce risk it's better to lump-sum invest, but allocate a smaller proportion to stocks.
The reason being that, over a 5+ year investment horizon, a total US market portfolio will average about 6% after inflation.
However, going off of empirics, dollar cost averaging is less preferable when you have a single lump sum. While it's possible that you 'time' the market wrong with your investment, the odds that you'll happen to invest immediately before a sharp down turn are lower than the odds that you'll miss out of rather significant gains by not being invested.
This all assumes that you have a diversified portfolio. If you're trying to invest in single stocks, good luck.
To be pedantic (this is Hacker News after all), that is not Dollar cost averaging. That's lump sum investing at a regular interval.
Dollar cost averaging assumes you start with a pot of money and you choose to invest fractions of that initial pot over time. This is opposed to lump sum investing in which you'd invest the full pot of money at the start.
https://en.m.wikipedia.org/wiki/Dollar_cost_averaging
What you are describing seems to be the Systematic Implementation Plan.
> Vanguard specifically discusses the confusion in their paper: "We refer to the gradual investment of a large sum as a systematic implementation plan or systematic investment plan. Industry practice is to refer to such strategies as dollar-cost averaging; however, this term is also commonly used to describe fixed-dollar investments made over time from current income as it becomes available. (A familiar example of this form of dollar-cost averaging is regular payroll deductions for investment in a workplace retirement plan.) By contrast, we are describing a situation in which a lump sum of cash is immediately available for investment."
It was almost ten years later that I encountered the notion of portfolio rebalancing specifically mentioned in the context of DCA. Luckily I already had a notion that this might be a good idea, but how you behave when you know something is good is a bit different from how you behave when you suspect it is. I was not being as disciplined about it as I should be.
How is this not the same as:
> Dollar cost averaging works when you have a steady stream of income that you're contributing to your investments and you have a heavily diversified portfolio.
My "pot of money" is my salary over the course of my career and my "investing fractions of that pot over time" is twice weekly contributions.
Whether I start with the whole pot or not is of no consequence.
Do you get paid your salary a whole year in advance? No.
Thus this distinction is important. As noted in the wikipedia article above the rationale for this has to do with "I have a big load of cash right now, do I just put all of it to work now or slowly over time?"
Let's say my career potential earnings are $1000.00US. Why can I not consider that my bucket of cash (even though I do not have it on my person all at once)?
By depositing 26 times per year, am I not putting my money to work "slowly over time"?
Scenario 1 [S1]: I have $120,000 in cash.
Scenario 2 [S2]: I expect to make $120,000 in cash over 12 months, equally once a month
On Day 0...
S1 - I have two choices: put all $120k in the market ("lump sum") or DCA is over 12 months.
S2 - I have no choice but to DCA it.
If I choose to DCA in S1, then I could have made more money by lump summing (depending on market conditions). This is basic TVM.
I see a lot of talk lately how if the Federal Reserve needs to get the "Federal Funds Effective Rate" to a "not artificially 0-2% low" (like we've had for a while due to various forms of quantitative easing) that stock returns of typical "6% after inflation" with dividends reinvested aren't as likely.
Any thoughts?
This is mathematically true. Psychologically less so, and that's because of loss aversion.
DCA helps you avoid the unfortunate case where the market tanks right after you've invested everything. In this situation, people can panic, pull out at considerable loss, etc.
As a retail investor, the most challenging part of investing is psychology, and DCA can help in that regard.
Agree 100%.
has and will are very different claims when applied to market behavior.
Yes the US (and global) economy has been in an incredible period of overall growth for many decades. We've had particularly insane growth in the last few years. But I see no evidence that anyone in their right mind should expect that growth to continue indefinitely.
People believe that bear markets are basically a season in the contemporary market place, but there is no reason that cannot be the long term trend. Across the board we're seeing resource and energy constraints.
For every individual asset people are well aware that "past performance does not indicate future returns" but somehow when we consider the combination of all assets we forget all about that.
Cash, as a store of value, is awful. You're guaranteed to lose 2-3% a year.
The question becomes what, exactly, can you do with cash. In countries where most or all industries are at their or near their productivity frontiers, you have two options. You either try to push the productivity frontier out and capture as much of the resulting value as you can, or you "lend" your assets to other people or groups of people who are attempting to do so.
The issue with either option is that innovation is inherently difficult. Failure is a real possibility and success generally requires a sustained level of effort.
The benefit that the second option gives you is the opportunity to place a large number of bets without having to also actively engage in the actual innovation. That is, you have the opportunity to passively invest in a diversified portfolio.
Now, if you take the second option, the question becomes how, exactly, do you invest. There are a couple of different options here. First, you can invest in an organization that captures rents from all of the economic activity according to some criteria. This is what you do when you invest in government bonds. You're essentially placing a bet that tax revenue will grow over time, which itself is a bet that - all else being equal - the economic activity of all of the individuals and companies that pay taxes will also grow over that period of time.
Second, you can attempt to purchase individual assets. Here you're making a directional bet that the value produced by that asset will grow over time. Real estate falls into this category (although real estate is by no means passive), as do corporate bonds and stocks.
The issue with this option is that the distribution of companies that successfully create additional economic value is extremely skewed. A small number of companies succeed. Those that succeed generally don't continue to do so over time. The rest either tread water or go out of business. Now, the other issue is that there is little to no evidence that individuals are able to successfully pick in advance which companies will actually to generate additional economic value - before - others do so. That is, it's extremely difficult to outperform the market.
Third, you can invest in a large number of companies according to some screen or criteria. This is essentially what you're doing when you invest in a total market fund. That is, knowing that a large number of organizations are trying to expand their productivity frontiers and that most of them will either fail to innovate or capture the resulting value, you 1. eliminate those that are most likely to fail and 2. place a bet that some percentage of the remaining companies will succeed. This approach has historically produced returns of around 6% in the United States.
> As a non-American I can't believe how much faith people put in the stock market here. I think they're going to be a rude shock the next few decades.
Going back to my original point, money is a bad store of value. Given that almost all investable assets (including government debt) are somehow tied to economic growth, it's just a question of where in the value chain do you want to place your bets, and do you feel that you're competent enough to successfully place directional bets on individual assets (evidence shows that, without active involvement, this is essentially a loser's bet).
You have to invest in something. The question is, what, exactly, are you going to invest in?
I agree that speculative returns are higher now than they have been in some/many historical periods. It's very likely that this will depress returns in the future, but to what extent is anyone's guess.
However, it's hard to construct a thesis that has US equity returns at or below 0 over a long period fo time. For that to happen, some combination of the following would also have to occur:
1. Population decline leading to a corresponding decline in economic activity. US demographics are projected to be better than most other developed countries for the next several decades. The US is also a destination for highly educated immigrants. Finally, large US companies are international and can (and will) take advantage of growing markets in South Asia and Africa.
2. Severe economic decline brought about by war, civil unrest, or an existential crisis. This is extremely hard to imagine. Short of a conflict with China or another pandemic, there is little reason to believe that economic activity in the US collapse in the immediate future.
3. Speculation was so high that a resulting return to the mean significantly reduces long term equity prospects. I agree that there is a certain amount of speculation in the market (although the mechanisms are different from what happened in the early-00s). However, valuations are no longer significantly high by historical standards. High, yes, but not to the point where mean reversion would suggest a multi-decade depression in equity returns.
> there is little reason to believe that economic activity in the US collapse in the immediate future
> not to the point where mean reversion would suggest a multi-decade depression in equity returns
I don't see how you're ruling out a scenario where the US economy can't keep up with expected growth and stagnates for a couple decades. You rightly claim that it's unlikely in the "immediate future", but 20 years from now? A pandemic already happened, why would it be "extremely hard to imagine" another more serious one happening soon?
To repeat the GP's comment: As a non-American I can't believe how much faith people put in the stock market here. I think they're going to be a rude shock the next few decades.
There is opportunity cost of the cash (inflation is 9% currently). These don't compare the same as apple and oranges.
Mathematically, as long as equity value is always accretive (due to passive flow from pensions) lump sum does win on a raw return basis. This doesn't take account of drawdown management. (Think 3AC)
Leaving aside the issue that past performance does not guarantee future performance:
If you're talking about "averages" based on historical data, then the average annual return over a 5-year period is -- by definition -- the same as the average return per year. The investment horizon doesn't affect the average expected return, but it does affect the dispersion of outcomes around that average.
I think it's a bit irresponsible to say that a 5-year investment "will average" 6%, when the standard deviation of that number is something like 8-10%. Seeing negative real returns over 5 year periods isn't just a theoretical possibility; it's historically fairly common.
"If you had invested $20/week evenly in these assets for the past 5 years, you'd have invested $5,200.00 and have $5,638.09 today, a return of 1.1X."
Usually that would be expressed as a return of 10%, and the return would be reported to the nearest percent. It would nice to allow the user to specify unequal weightings, say $15/week in SPY and $5 in IEF.
A general problem with showing the results of a dollar-cost averaging investment plan is that it gives more weight to later returns in the period, since that is when the most money was invested. It's true that people who are starting from $0 and saving regularly from earnings face this risk. Another simulation that is worth showing is having the full amount invested from the beginning.
I assume you are familiar with https://www.portfoliovisualizer.com/ , a comprehensive investment simulator (that is not a mobile app).
Good callout on custom-weighting, that's on the list to add in the future.
A few years back, I created a simulator that let's you simulate both putting money in - lump sum and incrementally - and also take money out. I'll see if I can find a link to a live version.
My system is down -1.58% this year compared to -17.39% for the SPX for a nearly 16% outperformance margin. I've documented the results and information about it here: https://grizzlybulls.com/models/vix-ta-macro-mp-extreme
1) Your performance chart starts right after the 2009 bear market and includes a huge bull market run up until the current slowdown where it then starts to match SPX. The straight line up until the drop starting in 2021 suggests that your model may not perform so well in the future.
2) You don't include the penalty from all the short term capital gains taxes you're generating.
3) If you can really generate those returns you wouldn't need to sell market timing signals.
1. Vix Futures are a huge part of all the VIX based models. Vix Futures came out in 2004 but the earliest intraday per-contract data publicly available is in 2009 which is needed to calculate the futures curve.
2. Slippage is included in the modeled returns but taxes are not, as mentioned in the tooltip. Taxes are not included because they vary widely by location, account type and implementation method. I've also written at large about how to minimize taxes on the blog. As a conservative estimate, feel free to multiply returns by 0.75x to get equivalent after-tax CAGR, but in most cases you'd beat this in real life.
3. Correct, and I make no guarantee that they will always be available. As of now, selling access to them in no way negatively impacts my own returns. I've met a lot of people in this journey and I enjoy leading a community and making an impact. I also make a significant amount of MRR that has grown substantially from the start of the year that gets reinvested into the models in my own account. I consider Grizzly Bulls to be a win-win alternative to the hedge fund industry for those interested in alternative investments. We've only ever had one Platinum member cancel, and given the model's underperformance in Q1 it was understandable. Since Q1, the model has been crushing the market, and it makes me happy to see our customers happy as well. Finally, as I mention several places, no one should ever expect any model to achieve 100% of its backtest performance, but there's enough leeway in the performance and drawdown figures to underperform the backtest and still generate substantial alpha, which has been my experience running them live for over 2 years now.
According to https://firstratedata.com/i/futures/VX, VIX intraday is available starting 5-Aug-2008. But your chart starts April 2009, which is the exact bottom of the bear market.
I can assure you that there's no conspiracy to start the models right at the start of the last bull market, and I'd be elated to get my hands on the data for this as well as a couple other indicators that don't stretch back as far. Though there is no guarantee, market volatility, bear markets and general downturns are actually the conditions that enable the models to outperform. During buy signals which can be quite lengthy in periods of low volatility during bull markets, the returns are exactly equivalent to buy & hold.
I've traded them with my own capital successfully since April, 2020, and I've averaged 75%+ annual return
April 2020, the exact bottom of the covid bear.
Not saying you're lying, and I don't know enough to be smart about the subject and I haven't read through your material, but it seems like a magic trick...
Your performance chart is misleading, I think, because it looks like it's showing hypothetical growth of an investment made in 2009 like we would normally expect from any other fund performance chart. Your site event says "$100,000 invested in the model at inception would have grown to $39,196,370". But your model was not investable until very recently. So it's essentially untested. The real performance numbers aren't anywhere close to that.
For this reason I think it would be fair call this out and to distinguish between the two types of trades shown on the chart: backward vs forward looking. Of course everyone would expect the backward looking trades to be impressive. The forward looking trades have already shown signs of weakness. It will be interesting to see how it does in the next few years.
Bottom line: this seems no different to me than someone producing a model that uses Jim Cramer recommendations as input to predict stock moves, fits it to produce near perfect historical trades", and then promotes their 60% CAGR as if it was real and actionable.
Good luck to you anyway.
People often think beating the market is impossible, and for an unaided human, it may be. But just like Magnus Carlsen cannot come close to defeating Stockfish at chess, sophisticated algorithms that analyze far more data than possible for a human are on an entirely different playing field. The ironic thing is the growth in the belief in the EMH and passive investing has actually made beating the market easier in recent years as there's simply much less competition and more money buying no matter what the economic conditions or monetary policy are to exploit. I've written a blog post on my take in depth on the subject here: https://grizzlybulls.com/blog/time-in-the-market-vs-timing-t...
I saw something it doesn't appear is present in your models, and I extrapolated from it into a program that chases that thing. Nonetheless it definitely seems like we've worked in a similar direction, as one potential application of my model is a simple long stock vs dollar trigger. And you've probably gleaned other insights I haven't. Offhand, would you be open to getting in touch and swapping strategies / pitfalls?
How long have you been running it live, and how far back does your backtest data run? How closely are you seeing real returns match backtest? After running live for over 2 years, I've seen up to 6 month periods where the model outperformed the backtest, but overall the models have underperformed to varying degrees as expected. Though I have spent hundreds of hours dedicated to removing noise and overfit bias, I've come to the conclusion it isn't possible to 100% remove it, which combined with expected market regime changes where legitimate patterns become unprofitable means that in the long run every model is essentially guaranteed to underperform its backtest, the question becomes simply to what degree. However, with a strong enough model, even underperforming the backtest can lead to substantial alpha which is what I and our members have experienced so far this year.
The testing data I'm using goes back to Y2K. Overfitting is definitely a concern. I've proven that a delta that worked one year doesn't work the next, or what worked for one five-year span doesn't work on the next five. But what's interesting is that the local delta mean can be broadly broken into distinct eras by looking at sliding time windows. e.g. From 1998-2008, the best overall fit scales down well to each year. 2008-2012, 2012-2020, 2020-now... the last one is the great unknown, of course, and too early to call if I've gotten close to it. Any test that covers the covid disruption or the 2008 crisis has a nexus that skews future results to the high side, so I feel those can't be trusted. If I can beat the market by 20% in the first year, I'll be happy.
I'll keep an eye on your progress. Best of luck!
Risk-adjusted, I wonder what the performance is like?
Just look at it this way - any time you get a sum of money that you intend to invest in the market, invest that entire sum immediately.
DCA just means you regularly/periodically get sums of money that you then invest immediately.
There's a big difference between splitting an available sum into equal parts and then periodically investing, and periodically investing money as it becomes regularly available.
Dollar Cost Averaging technically refers to neither. It simply refers to regularly investing a set sum (like $1000) at periodic intervals, as the price goes up and down. It refers to the average cost being less than the average price. As price goes down, that sum buys more shares. As price goes up, that sum buys fewer shares. But it says nothing about where the money comes from.
People then try to apply that definition in two different ways:
1) Using it to regularly invest a periodic income stream, like a portion of your paycheck. Note that in this case the lump sum (the yearly salary) is not entirely available at the beginning. The money is invested as it arrives.
2) Using it to split apart an already-available lump sump into n equal parts, and then buying into the market n times at regular intervals. Note that in this case, a large portion of the lump sum is entirely available at the beginning, and is not invested as it arrives.
Bogleheads is incorrect to phrase DCA as specifically dividing a lump sum into equal parts. It's not the common usage of DCA even on the Bogleheads forums or subreddits. And Bogleheads participants regularly chant that time in market is better than market timing. Splitting a lump sum over time is an example of market timing, since you are judging that later will be better than now. Bogleheads believe market timing is generally bad. They believe that definition #1 is generally good. They believe that definition #2 is generally bad.
So that's where the terminology confusion comes in. People refer to #1 as DCA, and call DCA good, and then misunderstand and also say that #2 is good, when it's (generally) bad.
https://www.investopedia.com/terms/d/dollarcostaveraging.asp
You can argue that it is better to just invest all the money as soon as possible, but that is not DCA.
Hard to beat dollar cost averaging the entire stock market, which is what VTI represents.
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Rebalancing is done between asset classes. But if you are going to rebalance, it's more efficient to buy target date funds.
SPY (S&P 500, average of the top 500 companies in the USA) is fine. VTI is fine. VT is fine. They'll all fluctuate with each other since they're different baskets, but picking a broad-basket of stocks and diversifying is the most obvious good strategy for stock picking.
When I started just allocating money into tech stocks I, as a software guy, appreciated return went way, way, way up.
Those Wall St quants can only appreciate M1 so far. They can't see the server farms 5 years out running linux on mac hardware. Or even if they can, they're paid to make decisions every day. "Boss, I'm just going to park it all on hedged and leveraged AAPL derivatives for the next half decade and sit on a beach." Isn't really going to fly.
VTI in any case is "the market average", because its literally the whole market. Its surprisingly a difficult strategy to beat, becaust most stock pickers perform below average (!!!).
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The only thing is that the stock market is very volatile. So it makes more sense to mix in bonds with regards to historical risk/reward. You lower your average gains, but often reduce your losses. (Long term bonds are doing poorly early this year, but with interest rates rising, I'd expect that moving forward bonds are going to do well)
And that's where a "target lifepath" fund goes. Those funds mix "total stock market" with "total bond market" and call it a day.
What if in 10 years the government decides that apple is too powerful? A new CEO comes in and destroys what has been built? A new competitor comes up with a product that is vastly supperior? A total stock market crash happens and your portfolio didn't have any bonds/ shorts/ hedges.
You might be able to go into financial ruin and no one would blink an eye. If large, multigenerational funds go down its a very big deal indeed.
that's why
"Boss, I'm just going to park it all on hedged and leveraged AAPL derivatives for the next half decade and sit on a beach." Isn't really going to fly.
isn't going to fly because the risk delta on that is very high indeed.
I am skeptical on this one. I don't see enterprise customers having a lot of confidence to buy into a new server line as Xserve only lasted ~9 years. They could have have continued to shlep that line along. I would think that Linux on ARM would be more likely than M1.
It also sounds like you've been lucky so far. There are many periods over just the last 30 years where the "sure thing" ended up bankrupting people. The hard part is beating the market over the course of your life.
I would caution such reckless confidence. "The more you know, the more you realize you don't know." - if you are looking at a subject like quantitative analysis in stocks and thinking "this isn't so hard", you probably know so little that you think it's easy, but not enough to realize the intricacies of why it's hard.
But anytime I mention my gains on HN the crowd says the same two or three things:
1. You're just lucky.
2. Herp quit your job and work Wall St. (No. I'm not primarily money motivated and those people generally, um, are far from my cup of tea.)
3. You're just lying.
They can keep saying that, they can keep down voting me. They didn't buy Tesla early or Bitcoin early or Shopify early, so nobody did that wasn't lucky. I'm not saying I'm some sort of finance prodigy, but it has been pretty easy to call tech stocks for the past ten or fifteen years and combine that with dodging recessions and an otherwise diversified portfolio and yearly returns after inflation of 15% are achievable, not even counting the Bitcoin payday.
Maybe because you are just lucky?
They definitely can. I got paid quite good money to sit down with full time professional investors and tell them exactly that, and lots of other things. They don't go into these things blind.
They pay good money to people like us to tell them what they need to know so they can see the future just a little better than everyone else.
I personally have 50% going into SPY DCA then a bunch of other bets. Some of them have outperformed SPY, certainly in the bull market. We'll see how they do over 20 years though.
I've actually outperformed SPY with my personal bets, both over the last 10 years in general, as well as over the last 2 years (including this bear market).
But this is play money, not serious money. The bulk of my money is SPY/VTI + various Bond funds. I'm holding short duration and ultra-short duration and even Money Market for the near future, giving an eye to expectations from the Fed / interest rate hikes before jumping back into long term bonds.
If you want to see how a specific asset mix based on your goals performs (e.g. more in cash and BND and less in VT because you have a big home purchase coming up), check out our app at https://livefortunately.com/
I’m traveling today so replies may be delayed.
We talk a bit more about it in our "white paper" blog post about what makes us different [2].
1: https://www.conning.com/-/media/marketingsite/documents/prod...
2: https://livefortunately.com/insights/what-makes-us-awesome
Brain dead DCA + working in tech and getting RSU / ISO re-ups every year means you're just betting only on tech.
Customization allows you to mitigate/ manage some sector risk if you want it.
VTSAX - total US stock market mutual fund https://www.morningstar.com/funds/xnas/vtsax/portfolio
SP500 - VOO https://www.morningstar.com/etfs/arcx/voo/portfolio
Tech simply has a proven track record of raking in outsize profits, and I see no reason to bet against businesses with unmatched efficiencies of scale and enormous barriers to entry. Hell, even the king of investing, Warren Buffet, has been humbled by BRK only just keeping up with SP500 because of its huge 25% investment in Apple.
You would have to go out to VT - total world market to see a difference in portfolio allocation.
A safer approach would be to just purchase a fund which excludes tech. Personally I'm too lazy to do this and just have a total market fund :)
On the other hand, if you are 100% certain in your investment thesis that you don't want overexposure to any company including your employer, you could try direct indexing the rest of your portfolio e.g. buy S&P 500 except for your employer. Selling on vest is another simple alternative you could consider.
Unless you invested in 2021…
The common “wisdom” of dollar cost averaging the market only works for those (1) who never sell (2) continue to have an ever inflating dollar and QE and (3) an ever growing economy
Right now energy prices are 3x-5x a few years ago. That will dramatically reduce growth and may even shrink the economy. Arguably the real economy has been stagnant for quite some time.
Not financial advice, but at the moment I would consider holding cash or other solid assets. Waiting for the energy situation to stabilize then buy in.
You could cost average, but timing the market can produce multiples more gains if your calm / collected, informed and willing to wait.
DCA reduces risks, particularly on the whole market. They said it doesn’t remove risk and it definitely reduces potential upside.
Read this:
https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
The article you link to: > The only other rule in this game is that you cannot move in and out of stocks. Once you make a purchase, you hold those stocks until the end of the time period.
Easy! Dollar cost average a leverage fund that invests in the entire stock market. TQQQ beats SPY over the long term.
TQQQ indexes the Nasdaq 100, not remotely close to "the entire stock market".
Lump Sum is just the rate of return from that date * initial investment. DCA is just that same lump sum equation but done/averaged out as many times as you've DCAed.
Just from intuition DCA would yield less than one lump if the expectation value is larger than 0. But then there is variance. If the asset is volatile enough that even a short period of DCA investing is bringing down the price a bit, I assume.
If the market goes up year and year then obviously lump sum investing is best, but it doesn't. It goes through periods of over and under performance and then returns the mean.
In any case, it's academic for most us investing from our salaries. DCA isn't a choice.
And of course, many of us don't have a big chunk of cash sitting around waiting to get invested.
Most of the time, in the long term, investing a lump sum beats DCA even if you buy at a previous peak.
1. Have a pile of cash to burn and invest it immediately, to maximize time in market
2. Have a pile of cash and sit on it to "time" a later lump sum entry to the market
3. Have a pile of cash and invest it incrementally for some ramped entry to the market
4. Have recurring income and invest it immediately as it becomes available
5. Have recurring income and save/buffer it up to revisit the alternatives (1)-(3)
6. Use credit to obtain a pile of cash ahead of income and revisit the alternatives (1)-(3)
Yes. There's a lot of research comparing dollar cost averaging with lump sum investing. Lump sum investing in a diversified portfolio (total market ETF) almost always wins, even in periods where markets are 'overpriced' (e.g., high CAPE 10 ratios).
Here is a good example: https://www.portfoliovisualizer.com/monte-carlo-simulation
Plenty of the white-papers from the big mutual fund firms give the impression they use very similar analysis methods.
Yes.
Watch https://www.youtube.com/watch?v=X1qzuPRvsM0 and read the papers referenced in the video.
People still working/getting paid.
How often are most paychecks?
Weekly, bi-weekly, semi-monthly, etc.
Maybe people with quarterly bonuses? Probably don't need to overdo it.
What would be super cool (and 100% out of scope for this) is like...
Buying only on "red" days (people trying to time the market thinking they'll buy the dip, but ignoring buying the market on the way up)
This can help people visualize how important consistency is when it comes to investments (or it can hypothetically show the opposite results on how blindly randomly buying stocks with no logic behind it might not perform the best, etc.)
Maybe there are strategies where technical indicators can act as a precursor for the decision making on whether or not you should buy or hold out?
But yeah 100% not in the scope of what you and your team are working on. :D
Two suggestions if you don’t mind:
1-add the ability to enable/disable dividend reinvestment (I assume it’s enable by default/currently). 2-increase the timeframe options beyond five years.
Thanks (I think you’re on to an actual product here)
Noted - we're going to add dividend reinvestment, and the timeframe option is a good callout too.
I think it is an ad for an app doesn't reinvest dividends either.
But there's so much randomness in the system it doesn't really matter
Just yeet your money dawg, stop thinking.
Ford/Toyota/etc can almost certainly build better cars, but it doesn't have the technology focus, culture, or data to make it as big of a player in some hypothetical multi-trillion self driving car industry.
Not saying Tesla doesn't have some advantages over incumbents in terms of battery supply chain, etc, but those are reasonably solvable problems given enough money and time. But it's hard to catch up to the amount of data/machine learning on that data Tesla has done.
Panasonic, LG, CATL, BYD, etc are going to be the leaders in the battery supply chain from what I can tell, and the legacy manufacturers will be able to buy from them just fine.