Dollar Cost Averaging - how frequently to buy?

[lexde]

I used to be paid salary and biweekly. At that time, I would automatically transfer a set amount into my investment accounts each month, and set up auto-investing. Since I was getting paid the same amount each month, it was really easy to automate everything.

Now, I am getting paid once per month and it is variable (but a larger amount, so the variability doesn't really have as large an impact).

My question: Would I be better off investing the full monthly amount in one lump sum each month, dividing it in half and investing every two weeks, or dividing it into weekly investment buys?

[oldladystache]

Buy when you have the money, sell when you need the money.

[lexde]

Buy when you have the money, sell when you need the money.

I understand that - my question is more along the lines of: "Does the benefit of dollar-cost averaging over a more frequent period outweigh the potential downside of holding that cash over the span of 2-4 weeks over the course of a year?"

[Wintergreen78]

Buy when you have the money, sell when you need the money.

I understand that - my question is more along the lines of: "Does the benefit of dollar-cost averaging over a more frequent period outweigh the potential downside of holding that cash over the span of 2-4 weeks over the course of a year?"

Over the course of your career, it won’t make much difference. You are likely to come out slightly ahead if you put money in every 2 weeks instead of once a month, but the difference is likely to be small.

Edit: sorry - I misread your post. I’m agreeing with everyone else, just invest as you are able to. I wouldn’t hold money for a few weeks to try and DCA between paychecks.

[Radagast]

I think in theory there would be a small advantage to DCA every day, because you would be guaranteed to catch each lowest point which would have an outsized effect compared to you also catching each highest point. That would be ideal if you were paid daily, or if you had decided to DCA a lump sum in.

But, the way the market works, it will almost always go lower than where it is now. Except on a handful of days where it goes higher and never goes back. You can't know in advance when those days will be, so the best strategy is to shovel money in as soon as you can because some day that window of opportunity will close and you will be permanently out a few percent. I expect the difference is small, but this outweighs the first effect.

So I would recommend "as soon as you get the money."

[Wolfpack Mustachian]

My understanding is similar to Radagast. There are a handful of days in the stock market's history that have seen significant gains. We don't know when those will be in the future, so it's better to get as much money in as often as you can to try to have it in there when those days happen. That being said, I don't always follow this myself as I'm DCA'ing in money right now twice a month that I could dump in immediately.

[cool7hand]

Buy when you have the money, sell when you need the money.

+1

[Radagast]

My understanding is similar to Radagast. There are a handful of days in the stock market's history that have seen significant gains. We don't know when those will be in the future, so it's better to get as much money in as often as you can to try to have it in there when those days happen. That being said, I don't always follow this myself as I'm DCA'ing in money right now twice a month that I could dump in immediately.

Yeah our taxable accounts / cash typically have a bit of slack, so not all money intended to be invested goes there immediately either. I just put in $10k that had been floating around for months, and should work on scrounging together the next $10k within a few weeks. In theory I should be scrounging every month if not every week.

[JAYSLOL]

I get paid every second Friday, DW gets paid on the other Fridays, so we get paid weekly between us.  I keep just enough to cover the credit card balance, plus $500 in our checking account, then an emergency fund of $5k in a savings account.  Literally every extra dollar above that goes into index funds when it hits our account each week, but I’d throw it all in at once as it showed up if it came monthly. 

[vand]

If you are wondering when you put your money into the market over the course of the week/month then you are wasting your time. Over a long timeframe it won't make any difference.

But I want to point out that what most people refer to as monthly DCA is better described as monthly lump sum buying.

Cost-averaging is a technique used to put a lump sum of money into the market over time. If you don't have the lump sum up front then it's a moot point - all you are doing is buying with the funds that are available to you at the time.

Most of us accumulate our wealth over a long working career. We buy with the income available to us from our day jobs at whatever prevailing prices are on offer when the money is available to us. That's not cost-averaging. That's a series of mini lump-sum buys.

[secondcor521]

Buy when you have the money, sell when you need the money.

I understand that - my question is more along the lines of: "Does the benefit of dollar-cost averaging over a more frequent period outweigh the potential downside of holding that cash over the span of 2-4 weeks over the course of a year?"

On average, markets go up.  That's why we invest in the first place - we expect our investments to go up over time.

Therefore, holding on to investable cash and waiting one, two, or three weeks to buy investments is, on average, a losing proposition.  (There are times, like now, where holding on to cash for a short while, may turn out better.  But there are also times, like most of the last 10 years, where it would not be.  Again, the averages are not in favor.)

Therefore, were I in your shoes, I would invest whatever excess amount above cash flow and emergency fund needs at your earliest convenience every paycheck.  Over the length of your career, I think the odds are in your favor.

[Wolfpack Mustachian]

If you are wondering when you put your money into the market over the course of the week/month then you are wasting your time. Over a long timeframe it won't make any difference.

But I want to point out that what most people refer to as monthly DCA is better described as monthly lump sum buying.

Cost-averaging is a technique used to put a lump sum of money into the market over time. If you don't have the lump sum up front then it's a moot point - all you are doing is buying with the funds that are available to you at the time.

Most of us accumulate our wealth over a long working career. We buy with the income available to us from our day jobs at whatever prevailing prices are on offer when the money is available to us. That's not cost-averaging. That's a series of mini lump-sum buys.

I didn't notice this in your post until vand pointed out it but they're totally right. Don't stress over this if it's just your normal pay. Whether or not you put 500 bucks or whatever into the market a week ahead is not worth worrying over. If we're talking about selling a house and putting in 100 or 500k at one time or spreading it out,  totally different level of importance.

[RoyaltyMan2022]

If you are wondering when you put your money into the market over the course of the week/month then you are wasting your time. Over a long timeframe it won't make any difference.

But I want to point out that what most people refer to as monthly DCA is better described as monthly lump sum buying.

Cost-averaging is a technique used to put a lump sum of money into the market over time. If you don't have the lump sum up front then it's a moot point - all you are doing is buying with the funds that are available to you at the time.

Most of us accumulate our wealth over a long working career. We buy with the income available to us from our day jobs at whatever prevailing prices are on offer when the money is available to us. That's not cost-averaging. That's a series of mini lump-sum buys.

I didn't notice this in your post until vand pointed out it but they're totally right. Don't stress over this if it's just your normal pay. Whether or not you put 500 bucks or whatever into the market a week ahead is not worth worrying over. If we're talking about selling a house and putting in 100 or 500k at one time or spreading it out,  totally different level of importance.

This is my situation. I have the funds available right now and plan to max out my Solo 401k this year ($61k). Given the current market conditions, would you do a lump sum or dollar cost average? The other option is to do half now and the rest in 6 equal payments. Think that sort of hybrid approach would be good because I still get the benefits of both strategies - time on the market while avoiding market timing risk to an extent.

Asset Allocation:

Vanguard Total Stock Market Index Fund 40%

Vanguard Total Bond Market Fund 10%

Vanguard Total International Bond Index Fund 10%

Vanguard High Dividend Yield Index 40%

[Wolfpack Mustachian]

If you are wondering when you put your money into the market over the course of the week/month then you are wasting your time. Over a long timeframe it won't make any difference.

But I want to point out that what most people refer to as monthly DCA is better described as monthly lump sum buying.

Cost-averaging is a technique used to put a lump sum of money into the market over time. If you don't have the lump sum up front then it's a moot point - all you are doing is buying with the funds that are available to you at the time.

Most of us accumulate our wealth over a long working career. We buy with the income available to us from our day jobs at whatever prevailing prices are on offer when the money is available to us. That's not cost-averaging. That's a series of mini lump-sum buys.

I didn't notice this in your post until vand pointed out it but they're totally right. Don't stress over this if it's just your normal pay. Whether or not you put 500 bucks or whatever into the market a week ahead is not worth worrying over. If we're talking about selling a house and putting in 100 or 500k at one time or spreading it out,  totally different level of importance.

This is my situation. I have the funds available right now and plan to max out my Solo 401k this year ($61k). Given the current market conditions, would you do a lump sum or dollar cost average? The other option is to do half now and the rest in 6 equal payments. Think that sort of hybrid approach would be good because I still get the benefits of both strategies - time on the market while avoiding market timing risk to an extent.

Asset Allocation:

Vanguard Total Stock Market Index Fund 40%

Vanguard Total Bond Market Fund 10%

Vanguard Total International Bond Index Fund 10%

Vanguard High Dividend Yield Index 40%

The statistical right answer is to buy it all now. You could potentially make more money this particular time by waiting, but you'll be better off more often by putting it all in now.

[wageslave23]

If you are wondering when you put your money into the market over the course of the week/month then you are wasting your time. Over a long timeframe it won't make any difference.

But I want to point out that what most people refer to as monthly DCA is better described as monthly lump sum buying.

Cost-averaging is a technique used to put a lump sum of money into the market over time. If you don't have the lump sum up front then it's a moot point - all you are doing is buying with the funds that are available to you at the time.

Most of us accumulate our wealth over a long working career. We buy with the income available to us from our day jobs at whatever prevailing prices are on offer when the money is available to us. That's not cost-averaging. That's a series of mini lump-sum buys.

I didn't notice this in your post until vand pointed out it but they're totally right. Don't stress over this if it's just your normal pay. Whether or not you put 500 bucks or whatever into the market a week ahead is not worth worrying over. If we're talking about selling a house and putting in 100 or 500k at one time or spreading it out,  totally different level of importance.

This is my situation. I have the funds available right now and plan to max out my Solo 401k this year ($61k). Given the current market conditions, would you do a lump sum or dollar cost average? The other option is to do half now and the rest in 6 equal payments. Think that sort of hybrid approach would be good because I still get the benefits of both strategies - time on the market while avoiding market timing risk to an extent.

Asset Allocation:

Vanguard Total Stock Market Index Fund 40%

Vanguard Total Bond Market Fund 10%

Vanguard Total International Bond Index Fund 10%

Vanguard High Dividend Yield Index 40%

My vote would be half now, half in a month. Unless you are trying to time the market, you want to get in as soon as possible.  And in the grand scheme of things 60k is not going make a difference if you gain or lose a few percent.  I do these mental gymnastics every time I have a large lump sum and then I find myself worrying about when to time 10k investment increments and I think why am a worried about the few hundred dollar gain or loss. Even if I time it wrong and lose 10%, highly unlikely, that's still only 1k. And over a lifetime the odds are stacked in my favor. 1k is only about .1% of my stache and less of my future FIRE stache.

[Gremlin]

You could use a dollar cost averaging calculator (------) to see the optimal frequency. If you are holding on to the stock long term, it really wouldn't matter too much.

Please - tell me more about this app you're spruiking by necro-ing an old thread!  Reported.