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<p>[QUOTE=&quot;NorthKorea, post: 2531833, member: 29643&quot;]I&#039;m arguably the worst financial advisor of all time. That said, Dollar Cost Averaging is generally a misnomer when it comes to finance.</p><p><br /></p><p>All the success of DCA in terms of mutual funds comes from systematic investment and the general design of mutual funds. As JeffB stated, when you sell, you&#039;re selling units, whereby you buy dollar amounts. This is why it seems to work for stocks/mutual funds. People convince themselves that they have more shares than they would have had if they just bought while attempting to time the market.</p><p><br /></p><p>Now, my argument is a bit different. If you&#039;re going to invest $10k, history tells us that you&#039;re better off investing all $10k today than you are investing $1k each month for the next ten months. Why? The market is historically up.</p><p><br /></p><p>DCA advocates will show you a chart where your $10k investment today goes down to $7k in four years, then back up to $10k six years later, yielding a $10k current and future value. They then show that if you had invested your $10k over the 10 intervals, you&#039;d have bought:</p><p><br /></p><p>$1k @ $10 a share (100 shares)</p><p>$1k @ $9 a share (111.11 shares)</p><p>$1k @ $8 a share (125 shares)</p><p>$1k @ $7 a share (142.86 shares)</p><p>$1k @ $7.50 a share (133.33 shares)</p><p>$1k @ $8 a share (125 shares)</p><p>$1k @ $8.50 a share (117.65 shares)</p><p>$1k @ $9 a share (111.11 shares)</p><p>$1k @ $9.50 a share (105.26 shares)</p><p>$1k @ $10 a share (100 shares)</p><p><br /></p><p>$10k investment resulted in $11,713.20 (1171.32 shares @ $10) in 10 years due to DCA.</p><p><br /></p><p>Of course, they fail to consider that the mirrored scenario could have happened:</p><p><br /></p><p>$1k @ $7 a share (142.86 shares)</p><p>$1k @ $8 a share (125 shares)</p><p>$1k @ $9 a share (111.11 shares)</p><p>$1k @ $10 a share (100 shares)</p><p>$1k @ $9.50 a share (105.26 shares)</p><p>$1k @ $9 a share (111.11 shares)</p><p>$1k @ $8.50 a share (117.65 shares)</p><p>$1k @ $8 a share (125 shares)</p><p>$1k @ $7.50 a share (133.33 shares)</p><p>$1k @ $7 a share (142.86 shares)</p><p><br /></p><p>$10k investment would have resulted in $8,499.26 (1214.18 shares @ $7) in 10 yearss due to DCA.</p><p><br /></p><p>Given the historical growth history of the S&amp;P 500 (which is tainted in its own way), if you invest $10k today, your expected investment value is $20k 10 years from now in today&#039;s dollars (7.2% adjusted for inflation).</p><p><br /></p><p>Assuming even the most random scatter plot of growth models, DCA falls short of full initial investment something on the scale of 68% of the time. Of course, no financial advisor will EVER tell you that for two reasons:</p><p><br /></p><p>1) If they told you that you&#039;re better off investing in a broad market today than through some systematic structure, you&#039;d think they don&#039;t provide a service to you.</p><p>1a) They want to feel they&#039;re earning their money.</p><p><br /></p><p>2) The concept of DCA simplifies the concept of investing, where systematic investing gets redefined as DCA, and you (the client) feels more comfortable with the ACH that comes out of your account for $1k every month to add to your investment portfolio.</p><p><br /></p><p>So, in summary, it&#039;s not DCA that breeds success over the long run, but rather systematic investing. If you keep investing the same amount (or more, as your income grows) each period, your portfolio will grow over time, as you&#039;ll ride out the bumps and dips. This isn&#039;t the same as DCA, even though most (all?) DCA advocates will try to tell you that it is.[/QUOTE]</p><p><br /></p>

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