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Grex > Finance > #24: dollar cost averaging frequencies | |
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devnull
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dollar cost averaging frequencies
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Oct 2 06:54 UTC 1998 |
Apparently, it is the case the repeatedly investing N dollars every
month, year, or whatever, is advantageous because you will buy more
shares when the cost per share is lower.
So, my question in whether it is better to invest money yearly,
monthly, or weekly. If investing smaller chunks more often
ends up buying more shares, that would be desireable; OTOH, if I invest
yearly, I'd probalby tend to invest the entire year's money in january,
which gives the average dollar I invest in the given year an extra 6 months
to grow at whatever rate the investment grows.
I suspect that the answer to this question is not particularily well-known,
since I have not seen it addressed anywhere. One would probably have to
find weekly or monthly data for several mutual funds, and crunch the numbers.
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| 5 responses total. |
i
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response 1 of 5:
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Oct 2 23:17 UTC 1998 |
Like compounding of interest, more often is better with dollar cost
averaging. Also like compounding, it gets to be a case of diminishing
returns. (Then there's transaction costs, minimum additional investments,
the bother of doing the paperwork, etc.)
But there's also a bunch of issues like tax consequences, volatility
pattern of the investments that the money is going into, your financial
needs & risk tolerance, etc. that complicate things.
Is this a taxable account? How soon (worst case) might you need the money
you're figuring to invest? What's the investment, and what might you do
with the money while waiting for the right time to invest it?
Reader's Digest answer: "It depends."
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devnull
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response 2 of 5:
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Oct 4 07:20 UTC 1998 |
In this case, I'm thinking of a roth IRA, and presumably if I would
choose to go with a weekly or monthly investment, I'd set up automated
transactions, such that the paperwork hassle would be tolerable.
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katie
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response 3 of 5:
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Oct 4 07:24 UTC 1998 |
My answer would be: start with whatever lump sum you can, and then add to it
regularly. If your goal is long term, it can'`t be much worse than having
the money vegetate at 2-5 %.
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i
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response 4 of 5:
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Oct 4 16:36 UTC 1998 |
Okay, so it's untaxable & decades from being needed. If the investment is
something low-risk/low-volatility, i'd echo katie's advice. If not, i'd
look at the size of the lump sum you've got to invest now - if it's bigger
than a couple month's worth of periodic investments, i'd dollar-cost-
average the lump sum in, too - at the same $/day rate as following
periodic investments (but not over 9 months).
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katie
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response 5 of 5:
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Oct 5 05:10 UTC 1998 |
Not me. I`d just split the lump sum among more than one type of fund.
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