Dollar Cost Averaging

Hello,

I am new to this forum and love it and have appreciated all of your thoughts and idea.

I have been collecting for years but just recently decided that I am going to start investing in Silver Bullion Coins as more of an investment than a hobby. I am fearful that I could be buying in at the market high so I am going to use the power of dollar cost averaging to ensure I limit any potential losses and I want to get your thoughts.

I plan on buying every month but for simplicity sake I will use $100 as my the amount I purchase each month. I am going to assume some wild swings here over the next year (sorry I can't get this to format the way I want it but it's amount per month, price per ounce, and ounces per month)...

$ per ounce - ounces/month
$100 $18 5.555555556
$100 $16 6.25
$100 $12 8.333333333
$100 $9 11.11111111
$100 $8 12.5
$100 $12 8.333333333
$100 $13 7.692307692
$100 $9 11.11111111
$100 $8 12.5
$100 $7 14.28571429
$100 $9 11.11111111
$100 $7 14.28571429

At the end of the year I wil have purchased $1200 worth of silver and my average cost per ounce will be $9.75. So worst case scenario I am down $2.75 an ounce. Best case scenario the price does not drop nearly this much and I am up. Especially if my time horizon is 10+ years, which it is.

So, is my thinking flawed? Am I missing something?

Thanks,

RJ

 

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The current spot price of silver is about $17/ounce. I do not agree with your projections that silver will fall that far below $16/ounce for 10 months this year. If it does, I will be a major buyer for sure. Many believe that silver is undervalued. You also need to factor in whether you can buy for spot or need to add in a premium and also whether you need to add in shipping costs. Dollar cost averaging may work over the long haul but there are many other factors you may also need to consider. TC

 

Thanks TopcatCoin for your input. I was saying worse case scenario if I started to invest now. I don't think any of us have a crystal and none of us can predict the future but I agree with you in that I don't see silver dropping like that.

That being said, I think its just as important to plan for the worst and hope for the best as I have attempted to do here. Also I agree with you about cost of shipping (if applicable) and premium over spot. Again though I am speaking in generalities. Investing always has a cost. Mutual funds, stocks, bullion, it does not matter and you always hope your investment gains more than your initial investment plus costs.

So it sounds like you agree with me? If prices continue to rise, I am golden (no pun intended) because my average cost per ounce will be lower than current market value.

RJ

 

I do not use dollar cost averaging for silver but some on this forum do so I will defer to the experts to give you more specific advice. I tend to follow the metals market and try to buy silver during dips in spot price. I also look for deals in which I can buy as close to spot or even under spot. TC

 

I have been dollar cost averaging the last 3 years with silver purchases. I think it is a great plan. I really have no idea what my DCA is but I am strong hands and in it for long term. Just like TC has said, there are "hidden costs" to consider. Premiums seem to increase as spot decreases so one needs to shop around for the best deals. I have found that doing group buys with a couple close friends helps save on shipping costs. I don't think the price fluctuations will be as severe as your chart but it is a good example of your theory. Looks to me like you have a well thought out plan....good luck to you.

 

Years ago, Forbes magazine published an article entitled something like, "25 Ways to Lose Money by Dollar-Cost Averaging."

I wish I had saved it. All formula investing plans look good on paper.

 

It would be interesting to see that article. I know that one argument against it is if you have a sum of money to invest now you might as well invest all of it as the market typically does go up, not down over time.

That being said, I don't have a sum of money to invest today so that argument does not hold true. I wonder what the other 24 reasons are.

RJ

 

I wouldn't favor such a plan because you are deciding and committing to buy before you even know what the economic conditions and fundamentals of the metals market is at the time. Also, if you think it through, the only way dollar-cost averaging can beat buy and hold is if the price is lower than both the start price and end price for a significant period of the time the investment is held. In all other cases, buy and hold will equal or outperform the technique. But in your case, it may be your only option. I just think too many people and their investment advisors believe it is a better technique than it actually is.

 

I think the best advice would be to shop around....look for the best deal. One dealer might be selling ASE for $20.50, another might be for $19. Make a phone call, ask the price of a ASE....ask if you bought more at once like the whole case (holds 20) if they'd go down a dollar or $1.50 per Eagle. This is a better way to average costs then just simply buying it for whatever you can find it for. Don't be afraid to ask for a better price, which many dealers will be willing to offer if they know they will sell a lot in one lump.

If you buy the new 2010's and keep them in the container and don't keep opening it to look at them, touching them, clanking them together, you might have a good investment if the coins turn out to be in good condition years from now, as you said you wanted to do this 10+ years.

 

Atlanta is horrible for local dealers. I made a few phone calls last week and one guy was asking $29.50 a piece for uncirculated 2009 ASE?!?

The next place I called the conversation went like this....
"Hello, Buckhead Coins"
"Hi, I am looking for uncirculated American Silver Eagles"
"Oh, we don't sell coins anymore"
"But you answered the phone Buckhead Coins"
"Yep, that's our name"
"ah, okay, goodbye"

Brutal!

 

Sometimes when the price of silver drops, like it has recently, many dealers don't want to sell. Because they know that you might be looking to pay slightly over spot, and they won't make their own profits. Mostly, they are hoping the price goes back up to $18.50, so that they can charge you more. I say keep calling and let your fingers do the walking. Atlanta is a large metropolis area. Many times, the best dealers are hard to find. I had to search "coin dealers" by individual suburb one at a time before I found I guy willing to see for just $2 over spot for ASE in a small suburb barely on the map. His shop was very hard to find and didn't even have a store front, it was in a inside strip mall. Keep calling and be glad you didn't drive all over to these places. I'm sure you'll find something...keep looking.

 

Ditto! Alot of good info here!!

 

My stock philosophy was buy at 8000 sell at 11000, if I'd have done that in the last 20 years, I'd be rich, ( I have no disposable income) so how about buy at 16, sell at 18?

 

There was a very good thread here a couple weeks ago and I copied a portion of it for a friend who had asked me about bullion purchases. One link was a comparison of several bullion dealers, the second a link to the highest rated dealer from the first link.

http://inflation.us/reviews/

this link rates the bullion dealers….check these guys out.
http://www.gainesvillecoins.com/category/292/Gold.aspx

Dollar cost averaging is a good way to go, but the buyer has to look at the history of the commodity and hidden costs. You would probably be better off buying three or four times a year when you see some dips in the market because you see a distinct benefit from lower shipping costs and well timed purchases save you some money which may cover the entire shipping cost.

As it was said earlier in this thread silver is undervalued - when silver was priced proportionately with gold it was between1/20 and 1/35 the price of gold. It dropped off considerably with the Gold Rush in the western US. Right now it's closer to 1/64 the price of gold, so while silver is a bit expensive the ratio is way out of line because there is less of a demand for it by industry.

Whatever the reality is you still have to play your gut feelings to some extent.

 

The "good" news is you would not have been rich. If you run the numbers, you would have earned a return of approximately 7% per year including dividends but not adjusting for taxes. So it would have been a good plan, but hardly enough to make you rich.

 

Most people dollar cost average. You can only buy when you have funds. If you are a collector- investor, and buy and do not sell the result should be OK if you have a long horizon. Never to young to buy your first gold or silver collectible.PMs should be part of your total investments. How much is a personal thing.
At any given time one out of four or five solid investments will be in trouble.

Pep

 

But, in my other imaginary life, I invested 22 bazillion dollars.

 

Dollar cost averaging is a buy an hold strategy (or can be as long as you don't sell) unlike the opinion of some who have replied to my initial post.

Also, the only problem with buying on lows is that you are trying to time the market. That does not always work. For example you tell your self that "I am going to buy the next time it drops to $15". Then it never does but it slowly increases. You never buy and you lose out.

If you consistently buy regardless of price you will be better off if you believe that in 10 years or more the price will be higer than today. Which I do.

Dollar cost averaging can protect the down side risk (or help reduce it) by lowering your cost basis as you buy.

RJ

 

But only if the price is lower than both the beginning and ending price for a substantial period of time that the program is underway. For example, if the price gradually rises, dollar cost averaging will consistently raise your cost basis as you buy, not lower it.

It's just math.

 

Hi, I am new here, and this thread may have died, but in case anyone reads it, I would like to ask, if you are not going to dollar cost average and you are starting now, and intending to hold for the long term, what method would you use?

For instance, one could try to buy on dips on a monthly basis, combining the two methods. Or that may achieve nothing. If you wait until the price drops down to support, on what time frame do you base this? For instance, I could say I wanted to buy around 1070 or even at any price below 1000, because those have been resistance in the past, but how long does one wait before deciding it ain't going back down there?