Does DCA strategy really work in long term?

[w1rbelw1nd]

Well I wouldn't invest in something that moves in sideways anyway. Nothing to do with DCA.

Revolution;111117828]DCA for local market sucks...stupid STI moving sideways forever

better for international stocks

 

[w1rbelw1nd]

8% is really really bad for the past 2 years...

DCA is the average strategy for the average dude to earn average returns.

My annualized return for the past 2 years is 8%. That's not too bad and I put in 10 mins of effort monthly.

 

[BBCWatcher]

8% is really really bad for the past 2 years...

Not necessarily. It depends on the expected risk composition of the portfolio, and that should properly vary depending on the time horizon.

 

[hwmook]

Ya, if you happen to DCA during a period of uphill (i.e. this year), and market crashes and takes a few years back to your averaging price, you will still remain negative.

Pls don't get me wrong, I totally oppose putting all bullet at once for the reason you mentioned above.

Reverse DCA is a good idea, but most of the cases when people doing DCA for long term, the period of DCA is usually longer than the period you need to use the money, i.e. you may start DCA at age of 30 for the next 30-35 years, and I doubt you will be reverse DCA for 30 more years.

If you are a strong believer of market has a cycle, then you may end up averaging down to zero profit at the end. Yes, it would prevent extreme losses, but it would mean you would end up with not much difference from investing on low risk but low return investment vehicles like bonds.

If you start DCA now and market crash and take a few years to return to the price now, you would likely be positive not negative. The mechanism of DCA is about buying more during low price and less during high price so if price does not change over long term, you would have earn. The market need to be consistently down in order for you to lose money with DCA.

Investing in bonds is not risk free as you think, if the market is consistently down for decades like you said, most likely the economy is so bad and bond defaults are common. Bonds are not superior to stock market simply because they are linked.

 

[doody_]

8% is really really bad for the past 2 years...

Not for basically doing nothing except entering buy orders monthly for the same few counters.

 

[doody_]

erm thats because market has been rising the recent past???

Yes, so others who are picking stocks should be pulling in double digits min. I'm simply buying the index. My point is an average strategy makes average returns. I didn't expect to double my money overnight but neither did I expect to lose it overnight.

If I had the time and skill to pick stocks, I also want to. But I don't have time or skill

 

[Purplestars]

Yes, so others who are picking stocks should be pulling in double digits min. I'm simply buying the index. My point is an average strategy makes average returns. I didn't expect to double my money overnight but neither did I expect to lose it overnight.

If I had the time and skill to pick stocks, I also want to. But I don't have time or skill

All you need to do is DCA apple and Google and you beat the market every year. That's all the skill you need.

 

[BBCWatcher]

I'm simply buying the index.

Which one?

As a technical point, you cannot actually buy the index. You can buy an index(ed) fund, though, which is what I think you mean. You can also conceivably buy options pegged to an index in various ways. And, at least if you’re big enough, you can buy an index’s individual constituents (and try to keep them aligned with the index as it evolves). This distinction is important because funds have certain unique cost and trading volume characteristics.

 

[BBCWatcher]

All you need to do is DCA apple and Google and you beat the market every year.

Until you don’t.

 

[Purplestars]

Until you don’t.

And DCA the index works too, until you don't.

Worthless rebuttal.

 

[w1rbelw1nd]

I have been doing the same by sti, world index, EIMI... Not sure why your returns are lackluster...

Not for basically doing nothing except entering buy orders monthly for the same few counters.

 

[w1rbelw1nd]

Fair enough. Maybe he has 50% bonds or something.

Not necessarily. It depends on the expected risk composition of the portfolio, and that should properly vary depending on the time horizon.

 

[Mecisteus]

And DCA the index works too, until you don't.

Worthless rebuttal.

How long is your DCA horizon? 1, 5 or 20 years?

I suggest you check the constituents of the DOW. Only General Electric remains in the DOW since this index started.

I think Apple or Google can survive for the next 5 years but I am not sure 20 years later.

So if you try to DCA into a single stock, make sure you know when to sell them. Otherwise, bluechip stocks can turn into penny after many years.

If you buy the index, you know DOW, S&P500 and STI are likely to exist in the next 20 or 30 years.

 

[limster]

the need to believe that you can beat the market for your entire lifetime is very
strong for new investors with no track record even though there's a 49% chance that he is a below-average investor

generally, I accept the DCA+asset allocation thesis, while making room for the possibility that sometimes, there may be a cheap sale, and making sure I have the funds to participate in the cheap sale (like the recent Brexit cheap sale).

so yes, I do have a decent cash reserve that is growing bigger every month since I can't bring myself to invest all my spare cash. It does double duty as acting as my emergency reserve and also as war chest for stock cheap sale.

 

[deepblueli]

Thanks all for the comment.

I agree that DCA concept is simple for average person to understand, so easier to adopt. But it is nonetheless you are investing on the underlying asset. A few have agreed with me on this. This is an important point.

And I think adopting DCA also means you take a view that the price is going to be upward in long term, as you are accumulating long position.

If you don't have time to learn or manage your investment, I don't agree that you should just adopt DCA as a way to get into a high risk investment and believe you don't need to spend much time and can still earn you more profit than other low risk options.

My thought is if you want to earn a higher profit than a low risk option, e.g. SSB, etc. You need to prepare to do homework and spend time learning about investment, not blindly DCA on a high risk investment and believe you will end up getting more profit than traditional low risk investment.

In order to get higher return, you are expected to spend time. I am not saying you need to monitor prices every day, but you will need to monitor your portfolio regularly and make adjustments.

If you don't have time to learn about investment, I would strongly suggest to keep out of high risk asset and focus your financial planning on low risk one, e.g. SSB, FD, or even high guaranteed return endowment plan (which itself is DCA isn't it?)

 

[Purplestars]

How long is your DCA horizon? 1, 5 or 20 years?

I suggest you check the constituents of the DOW. Only General Electric remains in the DOW since this index started.

I think Apple or Google can survive for the next 5 years but I am not sure 20 years later.

So if you try to DCA into a single stock, make sure you know when to sell them. Otherwise, bluechip stocks can turn into penny after many years.

If you buy the index, you know DOW, S&P500 and STI are likely to exist in the next 20 or 30 years.

So basically, you are making my point for me.

It is easy to beat the market, it doesn't require much skill. What it requires is a set of balls.

People who have DCAed Apple and Google since their inception are raking in big compared to DCAing the index.

 

[ExtremeWays]

You guys are so wrong. In the market, the winners are power laws distributed. So most people will not get the beta peformance. Especially when they over invest. That's why I ask the questiom about what's the optimal allocation of cash to assets. To me, even smart guys like ShinyThing also don't know. That's how I know this is an impt work to research on.

 

[doody_]

I have been doing the same by sti, world index, EIMI... Not sure why your returns are lackluster...

Well I buy ES3 and IWDA, so either my calculation is wrong, yours is wrong, or our timeframe is different

 

[TabascoSauce]

Thanks all for the comment.

I agree that DCA concept is simple for average person to understand, so easier to adopt. But it is nonetheless you are investing on the underlying asset. A few have agreed with me on this. This is an important point.

And I think adopting DCA also means you take a view that the price is going to be upward in long term, as you are accumulating long position.

If you don't have time to learn or manage your investment, I don't agree that you should just adopt DCA as a way to get into a high risk investment and believe you don't need to spend much time and can still earn you more profit than other low risk options.

My thought is if you want to earn a higher profit than a low risk option, e.g. SSB, etc. You need to prepare to do homework and spend time learning about investment, not blindly DCA on a high risk investment and believe you will end up getting more profit than traditional low risk investment.

In order to get higher return, you are expected to spend time. I am not saying you need to monitor prices every day, but you will need to monitor your portfolio regularly and make adjustments.

If you don't have time to learn about investment, I would strongly suggest to keep out of high risk asset and focus your financial planning on low risk one, e.g. SSB, FD, or even high guaranteed return endowment plan (which itself is DCA isn't it?)

1. Not true that u can onli dca on high risk investment. U can also dca on Low risk investment such as bonds. In fact u can adjust the risk level based on how much u allocate to safe (e.g. Bond) and risky (e.g. Shares) assets.

2. Blindly is actually a key advantage. More than half the investors think they know wat they r doing, but in fact they don't. Blindly investing through a systematic approach is actually better off for most ppl. In Chinese, this is called 做多错多 （the more u do，the more mistakes u make）. As I said before, this is an empirical fact that is concluded from many decades of research. Google it if u r interested.

3. I agree with ur point that if u Wan to invest in anything, u need to spend effort to learn, tho for a slightly different reason. U need to know enough to understand why dca is more applicable for diversified investments (e.g etf). Dca is a method for reducing time risk. To reduce stock specific risk, u need a diversified porforlio for it.

4. I'm not sure if High guaranteed endowment exists nowadays. But it is probably not dca. U pump in some money periodically doesnt mean the money are used to dca by the fund manager.

 

[BBCWatcher]

Not true that u can onli dca on high risk investment. U can also dca on Low risk investment such as bonds.

You can buy toilet paper using dollar cost averaging.