Part 6/8:
Furthermore, the complexities of DCA lead to potential risks. A 2016 paper suggested that employing DCA might equate to maintaining a lower risk strategy than necessary, underscoring the need for caution when using this method. Consensus indicates that for more risk-averse investors, a lump sum investment with a conservative asset allocation might be more suitable than DCA into a more aggressive portfolio.
The Pitfall of "Buying the Dip"
Some investors anticipate market declines to maximize returns through a strategy commonly referred to as "buying the dip." However, research reveals that waiting for a drop—whether 10% or 20%—generally underperformed compared to simply investing a lump sum immediately.