What everybody ought to know about Dollar Cost Average vs. Lump Sum Investing

in #money9 months ago

new thumbnail.jpg
There is always an on-going debate amongst investors, which is better Dollar Cost Average (DCA) or Lump Sum Investing (LSI)?

DCA vs. LSI

im-right-1458410_1280.png

For DCA, you invest portions of money over time instead of investing your money all at once. For example, over one year, you might invest $1,000 per month, which equates to $12,000. Yet, with LSI, you will invest the $12,000 at once.

The problem with DCA is that it depends on market timing. With DCA, you may only be better off if the market goes down when you're investing your money. If the market is rising, then you'll want to invest it all at once.

In a study conducted by Vanguard, they concluded that the LSI beats the DCA strategy by an average of 1.5 to 2.4 %.

Financial means and behavioural finance

The following scenario is when DCA is maybe the better option. Just imagine you've had a massive windfall of money, e.g. inheritance or, lottery winnings or, a speculative cryptocurrency went to the moon. When you invest just before a bear market, an LSI could cause your portfolio to fall by 20 % or more. The outcome could be emotionally devastating. This could also influence your way of how you invest the rest of your life.

However, if you are looking in the short term to buy low and sell high by trading and the like, then DCA is of little use. If you invest prudently, though, this can give you the edge you need to achieve your goals.

The reality is a lot of people don't have the monetary means to commit an LSI. Instead, they plan to budget for investing a certain percentage of their income every month. And an excellent choice for those slow, stable investors is the DCA of their monthly contributions.

What approach do you follow? What are other pros and cons of both methods? Comment below as I am very interested to hear what the community thoughts are on this contentious topic.

Thank you for reading and hope you have a good rest of the day!


I also post my content on the following platforms:

Publish0x: https://www.publish0x.com/@aftershock9?a=Vyb82ANmev
Hive: https://hive.blog/@mercurial9
Read.cash: https://read.cash/@merurial9
Uptrennd: https://www.uptrennd.com/user/mercurial9
Steempeak: https://steempeak.com/@mercurial9
Instagram: https://www.instagram.com/minimalistpixel/?hl=en
Pinterest: https://za.pinterest.com/minimalistpixel/boards/

Sort:  

Congratulations @mercurial9! You have completed the following achievement on the Hive blockchain and have been rewarded with new badge(s) :

You have been a buzzy bee and published a post every day of the week

You can view your badges on your board And compare to others on the Ranking
If you no longer want to receive notifications, reply to this comment with the word STOP

To support your work, I also upvoted your post!

Do not miss the last post from @hivebuzz:

Project Activity Update
The Customization Guide for the HiveBuzz store