DCA discussion

Just read Monkeyboy's post about DCA.  Very good post. 

I remember that I replied M3E4 once about his DCA.  I pointed out one problem of the DCA is in the long run.  When the amount of DCA investment is very small portion of the total protfolio, DCA losses its adventage.  The return of DCA is similar to total market in the long run.

 

Monkeyboy's example is from 2000 to 2009.  When in 2007/2008, investment in DCA account is much higher than the amount invested each time (<2%).  So the down turn hits the total investment is much harder than the DCA investment each time.  So the DCA itself is no longer meanful (or any adventage).

 

The weighted DCA could reduce such issue, but can not totally avoid it when the total investment is really heavy.

 

The alternative way for DCA is to cashout when the total DCA investment is much higher than each DCA investment. Note: not cashout at down turn like 2008.  Could choose to cashout at market recovered (back to the original down turn starting point like now).  And dividing the total asset to larger DCA each investment.

 

Use Monkeyboy's example, you started at Jan. 2000 with $1000/month DCA. ended at 12/2009

With Monkeyboy's DCA, on 12/2009, I got $117083 with DCA, and total investment is $121000, and S&P is dropped to 1115.1 from 1394.46.  DCA is better than S&P, but worse than do nothing.  The reason is cashout during down turn.  The protfolio is hit really hard when the account is heavily loaded and DCA amount is <1% of total investment.

 

If cashout when the every downturn is over, (note: S&P at 1394 on 1/2000, 11/2006/ and 03/2012, so we should cash out in 11/2006 and 03/2012), and divided total investment to 30 for DCA.

I got: $102494 on 11/2006, and total investment $84000 (beat doing nothing and S&P500), divided by 30 plus $1000 ($4416.48) to DCA from 12/2006 to 5/2009 and $1000 until 03/2012.

on 12/2009, the DCA account has $130800 , and total investment is $121000 (beat doing nothing), while S&P500 at 1115.1 (20%+ lower than 1394).

on 03/2012 cashout, the DCA account is $196541, and total investment is $14800, S&P at 1408.

 

Conclusion:  If you want to "set it and forget it" with DCA, you need to cashout everytime when market went through a down turn and recovered back to where it started, than restarted the DCA.

 

PS. If you need my table for calculation, qqh me your email address.

 

所有跟帖： 

• well said, thanks. -Jeepster- ♂ (0 bytes) () 06/08/2012 postreply 21:03:28

• thanks for reading -planotx- ♂ (0 bytes) () 06/08/2012 postreply 21:15:02

• much better ! -比花花还花- ♂ (0 bytes) () 06/08/2012 postreply 22:17:32

• thanks for sharing！ the big issue is -美西游子- ♀ (208 bytes) () 06/08/2012 postreply 22:28:26

• you only cashout after it is over -planotx- ♂ (121 bytes) () 06/09/2012 postreply 03:17:58

• You assumed that the market would not go up too much above last -Morning3evening4- ♂ (671 bytes) () 06/09/2012 postreply 14:09:43

• I am just talking about DCA in a long run. -planotx- ♂ (422 bytes) () 06/09/2012 postreply 18:34:20

• 世界众多股市中，DCA只有对日本前20年不管用 -dividend_growth- ♀ (0 bytes) () 06/10/2012 postreply 05:50:43