DCA versus lump sum

[prosper]

Im just piggy backing off of another thread that mentioned DCA. Which method do you use and why? Does anyone actually have statistics to back-up which one has fared better in previous years?

[sweeps]

Lump sum in general beats dollar cost averaging because in general the market goes up. Of course there are no guarantees. If you invest a lump sum right before a market drop, you'll fare worse than if you would've DCA'ed.

[jIM_Ohio]

If you have money to invest, and the investment goes "up" in value, lump sum wins every time.

DCA is a way to "rationalize" investing small amounts at regular intervals. It is not the best investing technique. It is probably the most practical for the working class, though.

[humandraydel]

Well, really it depends on the volatility in the market. In the past few years there hasn't been much volatility, so lump sum was definitely better. Looking forward, volatility stands to increase, so DCA will better be able to compete with, and perhaps beat, lump sum. Anyone who just invested in January 2007 will probably fare worse (for 2007 performance, at least) than those who bought some in August and September.

[sweeps]

If you invest a lump sum right before a market drop, you'll fare worse than if you would've DCA'ed.

Case in point: If you invested a lump sum first thing on January 2nd, you're really regretting it now. The (U.S.) stock market has been pummeled since then.

[atomicrc11]

Personally I DCA. Mainly because this is how my 401k works by default. It comes out of every pay check and there isn't really a way to do DCA. With my Roth, I do it as well. I would rather get the possible return on the money than let it sit in a money market all year just to end up in the Roth anyway.