Author Topic: stop DCA during correction?  (Read 3431 times)

bortman

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stop DCA during correction?
« on: August 25, 2015, 08:06:48 PM »
Recently, I presented the scenario below in this thread .

5/1/2015
opened Vangaurd account:
VBTLX   $10,000
VTSAX   $20,000

7/1/2015
began DCA auto-investing a total of $375 / week (on Wednesdays), divided like this:
VBTLX   $18.75
VTSAX   $356.25
at this rate, after a year of auto-investing the account will be approximately 80/20 VTSAX/VBTLX

8/5/2015
total invested to-date (including dividends):   $32,249.98
total assets to-date:                  $31,993.67
difference:                        -$256.31

My question is: should I hold off on the weekly DCA contribution until the market settles down?

I don't plan to pull any of the initial $30k that I invested, only stop the weekly contributions until a better time.

The thing I didn't mention previously is that I can only do the weekly $375 contribution for about a year.

Feel free to offer encouragement .. or repeated face punches .. whichever you deem necessary.

Argyle

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Re: stop DCA during correction?
« Reply #1 on: August 25, 2015, 08:11:45 PM »
What do you mean by a "better" time?  A time when buying stocks is more expensive?  If so, why would you want to keep yourself from buying cheap stocks, and wait to buy them till they cost more?  When clothes go on sale, do you stop buying and wait until they're expensive again before spending your money?  Do you carefully only buy food when it's not on sale?

The whole point of dollar cost averaging is that you do it no matter what the market is doing.   Otherwise it's called "trying to time the market," in other words, "guessing, probably wrong."

fa

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Re: stop DCA during correction?
« Reply #2 on: August 25, 2015, 08:18:14 PM »
The whole idea of DCA is regular purchases no matter what.  As prices drop, you get more shares for your investment.  My DCA strategy is unaffected by the current market fluctuations.

Lump sum investing, the way MMM has done, is too risky for my emotional mind.  Had you invested a lump sum a couple of months ago, the loss would be substantial.

sol

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Re: stop DCA during correction?
« Reply #3 on: August 25, 2015, 08:19:31 PM »
No.  If you stop it's not really DCA, is it?

plainjane

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Re: stop DCA during correction?
« Reply #4 on: August 25, 2015, 08:37:06 PM »
You've had your money in the market for 3 months.  This is why people say that if you need the money in the next two years to put it somewhere safe, not in the market. 

You know all those threads where people asked what forum posters did during the last several downturns and whether people really stayed in and kept contributing?  This is when you discover your answer.

I remember the first "big" drop where I lost more in my investments than I was contributing on a monthly basis.  It was tough.  I have lost substantially more in the past week or so than I'll be putting in on the 31st (as per automated schedule).  It will probably be tough running the numbers at the end of the month - we were only just over a nice round number.  But that's why I've got it automated, I know I need to bypass the emotions on this and stop trying to second guess.

Argyle

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Re: stop DCA during correction?
« Reply #5 on: August 26, 2015, 04:51:02 AM »
You know how the formula for prospering on the stock market is "Buy low, sell high"?  If you stop putting money in now, you will only be "buying high."

Myself, I put an extra $1000 in and bought some nice index fund shares on sale yesterday.

bortman

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Re: stop DCA during correction?
« Reply #6 on: August 26, 2015, 07:08:14 AM »
Thanks all. I just needed a good dope slap.

Here's another question, regarding Argyle's last comment: should I double down?

Should I increase my weekly contribution from $375 to $750 ? If I did this my DCA would only last about 6 months.

Alternatively, do I make an even lower weekly contribution and stretch out my DCA money?

catccc

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Re: stop DCA during correction?
« Reply #7 on: August 26, 2015, 08:20:54 AM »
as frightening as it is, I am a fan of lump sum investing if you have the cash sitting around, so I say yes to doubling, just because it is that much closer to lump sum investing.

Kaspian

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Re: stop DCA during correction?
« Reply #8 on: August 26, 2015, 09:23:34 AM »
My question is: should I hold off on the weekly DCA contribution until the market settles down?

No, no, no, and NO!!  Why do people sign up for a passive investing system and then try and be active investors? 

You have a diversified portfolio--that's great.  However, do you have a written investment plan for that and keeping your allocations proper?  Mine involves rebalancing at the end of June and end of December (bi-annually) if allocations get out of whack.  That means I did it at the end of June--moved riskier stuff to "safer" stuff (bonds).  It's counterintuitive (at the time) to do this--selling some of your rockstars to put in the dogs is like chewing glass.  The primary purpose of diversification isn't to try and get the highest percentage return possible until it's time for FIRE, it's so that when a given market takes a dump I don't smell the fumes, panic, and act like a fucking idiot.

Tinkering is not allowed.  Tinkerers always fail compared to others.  Set your personal investment plan and then freakin' fuggedaboutit.  In your case it seems to look like:  33.3% bonds, 77.7% equity, DCA, rebalance if necessary on a pre-chosen date (annually or bi-annually), and otherwise leave it the fuck alone.  :)

....should I double down?

Should I increase my weekly contribution from $375 to $750 ? If I did this my DCA would only last about 6 months.

Alternatively, do I make an even lower weekly contribution and stretch out my DCA money?

No, no, and again--fuckity NO!  Are you sure you're a passive investor?  Don't tinker with the system.  Leave it.  Go have a nap.  ...Or watch a movie.  ...Or smoke some hash or somethin'.
« Last Edit: August 26, 2015, 09:31:30 AM by Kaspian »