Comments on Dividend Growth Investor: Dollar Cost Averaging

Thomas, Actually my data for VFINX using Yahoo fi...

2009-07-02T07:09:43.247-07:00

Thomas,

Actually my data for VFINX using Yahoo finance didn't have a quote for December 31 ,1986.

So the fact that I didn't include the 1987 crash was not intentional.

Unfortunately, you loaded the dice on your analysi...

2009-07-02T06:24:35.179-07:00

Unfortunately, you loaded the dice on your analysis.

I haven't checked yet, but I would imagine that if you started 4 months earlier (pre-1987 crash) you would've put in your lump sum at a 35% premium.

Patrick,I disagree that the analysis is flawed. I ...

2008-07-01T13:01:00.000-07:00

Patrick,

I disagree that the analysis is flawed. I am sure that if I looked at all the possible combinations using a simulation I could come up with an example where DCA outperforms the market. But would that be valuable to my readers?

"The shortcomings of your DCA scheme can be entirely attributed to the fact that your money is, on average, invested later in the year."

Actually the fictitious VFINX investor put equal sums of money at a fixed time every month. The end result of his purchases at year end assumed that the money should have been invested as soon as they were received.

I think your analysis is flawed. The shortcomings...

2008-06-28T19:42:00.000-07:00

I think your analysis is flawed. The shortcomings of your DCA scheme can be entirely attributed to the fact that your money is, on average, invested later in the year.

If you want to separate out the effect of DCA from the effect of earlier investment, have the investments occur, on average, at the same time. That is, if you are considering DCA to be an investment of $100 at the start of each month, compare that with $1200/year invested in the middle of June, and see how that performs.

The results I would expect would be a slightly higher return from DCA, plus much lower volatility. However, all of this would be drowned out by the bigger picture, which is: invest your money as soon as possible.

This is an interesting analysis. I Dollar Cost Ave...

2008-04-05T17:34:00.000-07:00

This is an interesting analysis. I Dollar Cost Average several mutual funds and always suspected this may not be the best approach. DCA definitely provides a discipline to save without you consciously deciding about it but it has is downside. For example I have been DCA'ing TAVIX and TAVX since 2003.It showed a very good XIRR (the Excel function to calculate accurate IRR's when you invest over a period of time)till market peak of July 2007. BEcause the market fell after that the XIRR has fallen significantly though I started almost 5 years ago.
I am considering an alternative please see whether you can backtest this stratergy.
I assume longterm return expectations of TAVIX is 12% every month I invest 100 dollars through systematic investing. Once a quarter, I check whether i received the 3% return, if the return is greater than 3% I do not do anything, if the return is less than 3% for the quarter, i put in extra dollars in the fund so that the total value equals principal+3%. This is kind of value averaging.

Thanks a lot for the nice words dividend4life. I d...

2008-02-16T22:03:00.000-08:00

Thanks a lot for the nice words dividend4life. I do hope to share my knowledge to my readers of this blog.

You have a great weekend!

That was a very interesting article. thanks for s...

2008-02-15T17:47:00.000-08:00

That was a very interesting article. thanks for sharing it. I plan to include your article in my weekly carnival review next Friday.

Best Wishes,
D4L