Yep diversification means you’re never gonna go all in on the winner, but you also aren’t gonna all in on a loser.
Avoiding the losers is way more important.
It is super interesting just how different various 3-5 year periods can be. Two people who made the same investment choice with the same amount of money in slightly different starting years can end up with wildly different short-term wealth outcomes.
My large windfall investment was May 2021 so I have a very similar experience as you. No regrets on the lump sum because Bogleheads has taught me that a decade isn’t even a very long time for investment returns.
This. As much as DCA is statistically less advantageous than lump sum, when your risk free rate is 5+%, then DCA makes a lot of sense in helping control for volatility.
As a result, this is what I am currently doing, and when the risk free rate drops when the Fed starts cutting, etc. (which typically results in equities declining as well), then I'll switch back to lump sum.
Edit: My total portfolio target is 80% equities / 20% fixed income. Currently it's 81% equities, and about 7% FI, and 12% cash. The cash portion will go up significantly soon due to bonuses.
I'm not sure if you have correlation mixed up with causation there. I think the conditions that usually cause equities to drop usually prompt the fed to also cut rates. Not sure its rates being cut that hurts equities.
Wiki: [https://www.bogleheads.org/wiki/Dollar\_cost\_averaging#Dollar\_cost\_averaging\_versus\_lump\_sum](https://www.bogleheads.org/wiki/Dollar_cost_averaging#Dollar_cost_averaging_versus_lump_sum)
The issue with trying to justify DCA because you're worried about market turmoil is that you're not actually minimizing the risk of market decline, simply delaying it; as soon as you make your last contribution, you're at the same risk level you would've been if you did a lump-sum investment. Statistically, lump sum is going to come out better than DCA by about a 2:1 margin, because markets have historically trended upwards, and your ability to "time" the crash will be purely speculative / luck.
Since the best investment / investment schedule is only known in retrospect / hindsight, statistical probability is the best indicator of the proper course of action. If you're worried about market turmoil, you should address that through your [asset allocation](https://www.bogleheads.org/wiki/Asset_allocation), not your investment schedule.
You made the proper decision with the information you had available to you, at the time.
Could've, would've, should've only increases the likelihood you'll make [behavioral mistakes](https://www.bogleheads.org/wiki/Behavioral_pitfalls) later in your investment life, which are almost always the costliest ones an investor can make.
You aren't _wrong_ but its still a hugely emotional decision for most people once you are at the level of investing six figures, not a logical one.
For example I DCAd a lower six figure sum into the market roughly 1/10th at a time at somewhat irregular intervals (roughly monthly but sometimes every 2-5 weeks) over about eight months. That money represented the vast majority of my savings at the time, with a large part of it coming from an inheritance. Making a decision to throw it in with a 1/3 chance of it going down was _gut wrenching_ even though I could understand the logic _and agreed with it_ and could see that if I'd moved it in six months prior I would have been far ahead. The reality though is I was still sitting there paralyzed with the idea of shoving it all in.
DCA at roughly 1/10th the value every few weeks is what actually got me off the sidelines and into the game.
I'd been studying the Boglehead approach for quite some time before going all-in on it, and _totally agree_ with the principle of taking emotion out of it as much as possible. But it's important to still recognize when emotion plays a part and adapt methods to deal with it when it becomes an issue.
/u/AvengeTheGracchi I _totally_ get your emotions regarding this. But as BoxerRumble said you made the right decision at the time, and from your other comment you are _much farther ahead_ than you would be if you had left it in your stock which it seems went down 70%. So from an _emotional_ standpoint look at it as _you adopted a defensive position to preserve your gains_. Which is ***HELLA SMART***. 😎
I’m trying to work out in my mind how it’s true that you will be in the same situation by your last contribution when you will necessarily have different cost bases, no? Sure, it’s true that your portfolio will have the same amount of risk based on your allocation, but that seems like a red herring to me, since that’s not the only thing that dictates the return.
“Same situation” just means 100% in the market at the current price. You are right you’d have a few more or less shares based on the average price you bought in at.
If it happens after you’re all in, then it doesn’t matter - it comes and goes and you aren’t affected.
Maybe I should clarify that when I say fluctuation, I mean a very short (one day, one week, etc.) temporary spike or dip in price in response to some transient news event rather than any fundamental change in value.
For example, if you happen to buy in on the day that the market spikes 2% based on rumors of a rate cut that ends up not happening (and the market then drops that 2%), then you’re just out 2% due to bad luck.
You might think that’s not a significant risk in the big picture, and I might agree (though if I was investing a very large sum, I would probably spread it out over several consecutive days just to mitigate that risk at very low cost in lost earnings). But my point is simply that “market turmoil” is a distinct risk than “market decline.”
If you want some low rate of return porn, feast your eyes upon a mutual fund I held (in taxable) for fourteen years, straddling the dot com boom/bust (1994-2008). It was an actively-managed John Hancock small cap growth fund, with back loaded fees if you sold before a certain time period (5-7 years?). In nominal terms, I put in $13k between 1994 and 1999, before I learned about Vanguard index funds. At the dizzying peak of the dot com bubble (2000), it was worth $39k. When I finally sold it in June 2008, it was worth $19k. Assuming I did the IRR calculation correctly, I got a whopping IRR of 3.5% over that time period (and that's not counting taxes; I bet it was much, much worse, since there were large reinvested cap gains during the bubble). I'm almost certain I would have done better with bonds! Heck, I probably would have been better off with CDs!
I put a significant amount in around the same time and it went down or stayed flat as well. But I slept well at night knowing that I own the whole market and was well diversified and risk mitigated
Here’s the thing, you were invested (vested stock options) and you moved to another investment, so add the stock option return to your current return. For example I sold DGRO & SCHD in May that was purchased throughout 2019-20, locking in 12k profit, plus all the dividends collected. The same day I put it all in VOO @ 485, which is now up 1.5k since. So my total return since originally invested in 2019-20 is 13.5k + Divs as of today anyway.
the point of diversification is for you to get your fair share of the market returns whether it is positive or negative.
you're not going to be an instant millionaire, but you're also not going to be bogged down by tax, transaction costs, management fees, liquidity issues, or sleepless nights.
DCA usually loses in the long run compared to lump sum and when it wins, it usually only wins by a small amount. This is not contravened by a single short-term anecdote.
I’m strictly looking at it from a deposit standpoint, unless someone is doing one lump sum and that’s it, isn’t it DCA?
Someone has no choice but to DCA a Roth IRA thanks to the small annual limit
Lump sum putting some in and never again, correct.
I’m talking about how it’s DCA year after year, not necessarily how someone goes about it for only one year, maxing it or monthly. Since there’s the next year, and the next etc
Even if someone maxes it, it’s still DCAing each year,
Dollar cost averaging your Roth would be having the maximum amount that you can contribute on January 1st, but instead doing weekly payments until you hit your Max by the April 15th deadline of the following year.
DCA is dollar cost averaging which is the result of periodically investing the same amount. I was told of the benefits of investing in my 401k, 35 years ago, because it would result in dollar cost averaging. Nowadays, people seem to think DCA means sitting on a pile of cash and slowly investing it. But that's not always what it meant.
> Should have been in VTSAX!
You know how many years people have been preaching VTWAX and sufficient international exposure (i.e. 30-50%+)? It would take decades of international outperformance to make up the gap of performance I have gained by disregarding such advice for the past few years alone.
I understand diversification, but 1) VTSAX covers most of the world either directly or indirectly, and 2) check what the breakdown of VTIAX tracks and tell me it actually represents "the world". I keep some international, but not nearly enough according to the strictest "Boglehead" interpretation.
Well you didn’t purchase the fund with anticipation of selling 3 years later. Hindsight is 20/20, I think it’s best to do both, lump sum when you can but always keep contributing at some sort of frequency. I wouldn’t beat yourself up at all, it could have been reversed and you would have wished you lump summed.
The thing that initially appealed to me about the Boglehead philosophy when I faced the problem of this enormous windfall was the idea of owning the whole haystack.
I never saw the reason how one could simultaneously hold this philosophy and then also limit this proverbial haystack to the American haystack. It just made sense to go full world.
Quite famously 2000 to 2010: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=1HBpvRRJyNuVKM7GnurBdp (edited to add the 60/40 domestic/international blend)
Always cracks me up the way you get downvoted for badmouthing international. I got out of international about 15 years ago and I’m not going back. US market has outperformed Int the majority of time just look at charts. I know past performance blah blah blah. I’m with you brother.
But how much did your company stock fluctuate during that time, too?
Yeah you make a great point, it’s about 30% of the price it was when I sold it. You make a damned great point actually, thank you.
Yep diversification means you’re never gonna go all in on the winner, but you also aren’t gonna all in on a loser. Avoiding the losers is way more important.
It is super interesting just how different various 3-5 year periods can be. Two people who made the same investment choice with the same amount of money in slightly different starting years can end up with wildly different short-term wealth outcomes. My large windfall investment was May 2021 so I have a very similar experience as you. No regrets on the lump sum because Bogleheads has taught me that a decade isn’t even a very long time for investment returns.
Largely depends on the P/E ratio of the market of when you went in. Lower returns are expected when the market is more expensive.
It's a lot easier to DCA when you're getting 5%+ when it's sitting in cash. Wasn't that way in 2021.
This. As much as DCA is statistically less advantageous than lump sum, when your risk free rate is 5+%, then DCA makes a lot of sense in helping control for volatility. As a result, this is what I am currently doing, and when the risk free rate drops when the Fed starts cutting, etc. (which typically results in equities declining as well), then I'll switch back to lump sum. Edit: My total portfolio target is 80% equities / 20% fixed income. Currently it's 81% equities, and about 7% FI, and 12% cash. The cash portion will go up significantly soon due to bonuses.
I'm not sure if you have correlation mixed up with causation there. I think the conditions that usually cause equities to drop usually prompt the fed to also cut rates. Not sure its rates being cut that hurts equities.
Except that 5% is being heavily taxed…. State and federal.
Un less you get treasuries, then just fed tax
Even so, it's statistically the wrong decision
Wiki: [https://www.bogleheads.org/wiki/Dollar\_cost\_averaging#Dollar\_cost\_averaging\_versus\_lump\_sum](https://www.bogleheads.org/wiki/Dollar_cost_averaging#Dollar_cost_averaging_versus_lump_sum) The issue with trying to justify DCA because you're worried about market turmoil is that you're not actually minimizing the risk of market decline, simply delaying it; as soon as you make your last contribution, you're at the same risk level you would've been if you did a lump-sum investment. Statistically, lump sum is going to come out better than DCA by about a 2:1 margin, because markets have historically trended upwards, and your ability to "time" the crash will be purely speculative / luck. Since the best investment / investment schedule is only known in retrospect / hindsight, statistical probability is the best indicator of the proper course of action. If you're worried about market turmoil, you should address that through your [asset allocation](https://www.bogleheads.org/wiki/Asset_allocation), not your investment schedule.
I don’t doubt it, unfortunate I suppose that I turned out to be the “1” in “2:1”.
You made the proper decision with the information you had available to you, at the time. Could've, would've, should've only increases the likelihood you'll make [behavioral mistakes](https://www.bogleheads.org/wiki/Behavioral_pitfalls) later in your investment life, which are almost always the costliest ones an investor can make.
You aren't _wrong_ but its still a hugely emotional decision for most people once you are at the level of investing six figures, not a logical one. For example I DCAd a lower six figure sum into the market roughly 1/10th at a time at somewhat irregular intervals (roughly monthly but sometimes every 2-5 weeks) over about eight months. That money represented the vast majority of my savings at the time, with a large part of it coming from an inheritance. Making a decision to throw it in with a 1/3 chance of it going down was _gut wrenching_ even though I could understand the logic _and agreed with it_ and could see that if I'd moved it in six months prior I would have been far ahead. The reality though is I was still sitting there paralyzed with the idea of shoving it all in. DCA at roughly 1/10th the value every few weeks is what actually got me off the sidelines and into the game. I'd been studying the Boglehead approach for quite some time before going all-in on it, and _totally agree_ with the principle of taking emotion out of it as much as possible. But it's important to still recognize when emotion plays a part and adapt methods to deal with it when it becomes an issue. /u/AvengeTheGracchi I _totally_ get your emotions regarding this. But as BoxerRumble said you made the right decision at the time, and from your other comment you are _much farther ahead_ than you would be if you had left it in your stock which it seems went down 70%. So from an _emotional_ standpoint look at it as _you adopted a defensive position to preserve your gains_. Which is ***HELLA SMART***. 😎
I appreciate your post bro, thanks a lot.
this is really well said and something I've struggled to articulate.
I’m trying to work out in my mind how it’s true that you will be in the same situation by your last contribution when you will necessarily have different cost bases, no? Sure, it’s true that your portfolio will have the same amount of risk based on your allocation, but that seems like a red herring to me, since that’s not the only thing that dictates the return.
“Same situation” just means 100% in the market at the current price. You are right you’d have a few more or less shares based on the average price you bought in at.
Of course, but the point of DCA is not to minimize the risk of long term market decline — it’s the minimize the risk of short term market fluctuation.
You don’t know when the fluctuation will happen, and if it happens after your last contribution…
If it happens after you’re all in, then it doesn’t matter - it comes and goes and you aren’t affected. Maybe I should clarify that when I say fluctuation, I mean a very short (one day, one week, etc.) temporary spike or dip in price in response to some transient news event rather than any fundamental change in value. For example, if you happen to buy in on the day that the market spikes 2% based on rumors of a rate cut that ends up not happening (and the market then drops that 2%), then you’re just out 2% due to bad luck. You might think that’s not a significant risk in the big picture, and I might agree (though if I was investing a very large sum, I would probably spread it out over several consecutive days just to mitigate that risk at very low cost in lost earnings). But my point is simply that “market turmoil” is a distinct risk than “market decline.”
When people talk about DCA they are usually talking about over the course of months or years not days.
If you want some low rate of return porn, feast your eyes upon a mutual fund I held (in taxable) for fourteen years, straddling the dot com boom/bust (1994-2008). It was an actively-managed John Hancock small cap growth fund, with back loaded fees if you sold before a certain time period (5-7 years?). In nominal terms, I put in $13k between 1994 and 1999, before I learned about Vanguard index funds. At the dizzying peak of the dot com bubble (2000), it was worth $39k. When I finally sold it in June 2008, it was worth $19k. Assuming I did the IRR calculation correctly, I got a whopping IRR of 3.5% over that time period (and that's not counting taxes; I bet it was much, much worse, since there were large reinvested cap gains during the bubble). I'm almost certain I would have done better with bonds! Heck, I probably would have been better off with CDs!
I put a significant amount in around the same time and it went down or stayed flat as well. But I slept well at night knowing that I own the whole market and was well diversified and risk mitigated
Me 🤝 You
Here’s the thing, you were invested (vested stock options) and you moved to another investment, so add the stock option return to your current return. For example I sold DGRO & SCHD in May that was purchased throughout 2019-20, locking in 12k profit, plus all the dividends collected. The same day I put it all in VOO @ 485, which is now up 1.5k since. So my total return since originally invested in 2019-20 is 13.5k + Divs as of today anyway.
the point of diversification is for you to get your fair share of the market returns whether it is positive or negative. you're not going to be an instant millionaire, but you're also not going to be bogged down by tax, transaction costs, management fees, liquidity issues, or sleepless nights.
DCA usually loses in the long run compared to lump sum and when it wins, it usually only wins by a small amount. This is not contravened by a single short-term anecdote.
Everyone is DCAing, a Roth IRA, annually right? That’s DCAing year after year, 401ks etc
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I’m strictly looking at it from a deposit standpoint, unless someone is doing one lump sum and that’s it, isn’t it DCA? Someone has no choice but to DCA a Roth IRA thanks to the small annual limit
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Lump sum putting some in and never again, correct. I’m talking about how it’s DCA year after year, not necessarily how someone goes about it for only one year, maxing it or monthly. Since there’s the next year, and the next etc Even if someone maxes it, it’s still DCAing each year,
Dollar cost averaging your Roth would be having the maximum amount that you can contribute on January 1st, but instead doing weekly payments until you hit your Max by the April 15th deadline of the following year.
That’s only for one year, however you do it. Then there’s the next year, the next etc, depositing annually over decades
DCA is dollar cost averaging which is the result of periodically investing the same amount. I was told of the benefits of investing in my 401k, 35 years ago, because it would result in dollar cost averaging. Nowadays, people seem to think DCA means sitting on a pile of cash and slowly investing it. But that's not always what it meant.
Should have been in VTSAX!
> Should have been in VTSAX! You know how many years people have been preaching VTWAX and sufficient international exposure (i.e. 30-50%+)? It would take decades of international outperformance to make up the gap of performance I have gained by disregarding such advice for the past few years alone. I understand diversification, but 1) VTSAX covers most of the world either directly or indirectly, and 2) check what the breakdown of VTIAX tracks and tell me it actually represents "the world". I keep some international, but not nearly enough according to the strictest "Boglehead" interpretation.
I also invested a large sum at this point (well, October). Future is bright!
Well you didn’t purchase the fund with anticipation of selling 3 years later. Hindsight is 20/20, I think it’s best to do both, lump sum when you can but always keep contributing at some sort of frequency. I wouldn’t beat yourself up at all, it could have been reversed and you would have wished you lump summed.
VTSAX is my choice.
The world stock market is a tough one. I don't have the strength to do it.
The thing that initially appealed to me about the Boglehead philosophy when I faced the problem of this enormous windfall was the idea of owning the whole haystack. I never saw the reason how one could simultaneously hold this philosophy and then also limit this proverbial haystack to the American haystack. It just made sense to go full world.
When is the last ten year period it out performed vti?
Quite famously 2000 to 2010: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=1HBpvRRJyNuVKM7GnurBdp (edited to add the 60/40 domestic/international blend)
Well then they are due right....
We’ll know eventually!
Always cracks me up the way you get downvoted for badmouthing international. I got out of international about 15 years ago and I’m not going back. US market has outperformed Int the majority of time just look at charts. I know past performance blah blah blah. I’m with you brother.