Dollar Cost Averaging Is the Only Option for Some People?

[MasonL]

I'm very early in my FI path, and I keep reading from folks how lump sum investing is marginally better than dollar cost averaging. I've been out of school for almost a year and quickly got a full-time job that pays me very well. So far, I've been taking sizable chunks of my paychecks and buying VTI. This happens about every two weeks correlating with when I get paid. This is the only investing option I have at this point, as I don't have $200k just available to invest at once. I figure hey, why not just start now when I'm super young. But will this make a difference in the long-term, or is it just splitting hairs? Appreciate ya'll.

[ATtiny85]

DCA is used without definition far too often. Some will call what you are doing DCA, some will call it lump sum. Endless arguments about it that mean nothing at all.

You are doing exactly what you need to be doing. Focus on regular investing, focus on doing what you can over time to increase the amount over time. Enjoy life.


(what you are doing is my definition of lump sum investing: you are investing into your chosen asset allocation when you have the money)

[Freedomin5]

Time in the market is key, so don’t worry about trying to save up a lump sum and then investing it all at the same time. Just keep putting money in when you have money to put in.

[Psychstache]

1st off, good on you for starting early and taking care of future you!

You are in effect doing both, assuming you investing all your investible dollars.

The issue usually comes up when someone has a windfall (inheritance, sold a house and not buying a new one for the forseeable future, insurance settlement, etc) what do you do with this unexpected pile of cash, DCA or lump sum? math would support lump sum, but some prefer the emotional comfort of DCA in that context.

[erp]

Agree - you're doing the right thing. Some people end up with big lump sums when they sell a house or if they get huge bonuses for some reason. It's a nice problem to have, but I don't think it's something you need to be concerned about.

FWIW, I'd call what you're doing dollar cost averaging (in contrast to Freedomin5). But I wouldn't worry too much about the definitions - you're doing the right thing and asking the right questions.

[nereo]

I don’t quite understand what you mean when you say “This is the only investing option I have at this point, as I don't have $200k just available to invest at once.

You don’t need $200k to invest in most ‘normal’ investments. Many funds have minimums of $1k or less. You also have options like IRAs taxable accounts to choose from

Injustice do you think you need 6 figures to invest in [most] things?

[dandarc]

Semantics mostly. DCA has become a synonym for regular scheduled investing.

Technically speaking, DCA can only be an option if you have the option to lump-sum invest today. As you pointed out, you don't have a choice to invest today or dole it out over the course of a year or however long because you don't actually have the money in hand. Since you don't have that option, what you are doing is exactly what you should be doing - lump sum investing as soon as the money is available. Which happens to be on a regular schedule.

But again - that's a matter of technical vs. normal usage. Do what you're already doing - investing whatever you've got to invest as soon as you've got it is highly likely to work out well for you over time.

[talltexan]

$VTI is certainly adequate, but you describe yourself as young. Tilting toward small-cap and value may make sense for you. I've been using $AVUV for 10% of the money that goes into my retirement accounts, but other funds like this would also be fine.

[JAYSLOL]

All the discussions I’ve seen are people that ask that already have a lump sum they are deciding whether to invest all or dollar cost average.  That is deciding to Not Time The Market between lump sum and dollar cost average, both are good options, lump sum being statistically slightly better on average.  If you don’t have a lump sum already, you are deciding between Not Timing The Market by investing as the money comes in and is available, practically speaking that’s dollar cost averaging your money in, or Timing the Market by Not Investing and saving a bunch up to put in the market all at once, some people may call that lump sum investment, but it is very different and statistically terrible compared to dollar cost average.  So in summary, Lump Sum Existing Money Now -better than- Dollar Cost Average Of Existing Money -much much better than- any form of waiting ie Market Timing