[hansvm]

DCA isn't a panacea. It performs well in some scenarios and poorly in others (e.g. if by some means you're somehow certain the market will have a large dip and recovery but you don't know anything about the timing then dollar cost averaging will outperform many alternatives). Applying a rule of thumb as simple as "for long term investments in stable assets" misses enough nuance to lead people astray.

[deandree]

Nothing is 100% and/or guaranteed in trading. It's a game of probabilities and risk management

[hansvm]

Sure, but investing on a rule of thumb is neither an exercise in probability nor risk management. I'm advocating for using the information you have to choose an appropriate strategy, and I only brought it up at all because of how many people I've seen using DCA inappropriately because they don't understand when it performs well and when it doesn't.

[jiofih]

It literally has 100% guaranteed return over a period of 20 years, going back all the way to the first stock exchange. Not the best returns though.

[hansvm]

It's easy to pick a winning strategy when everything is going up. If that's the assumption you're using for your investments though (everything has been going up, so it'll keep going up) then DCA still probably isn't what you want -- it'll underperform even dead simple strategies like a diversified buy and hold nearly always. My point is that when choosing investments if you have any theory at all as to what the market might do (and if you don't, why are you investing?), you ought to choose a strategy which based on that information brings you close to your goals, and secondarily it's worth pointing out that in a broad variety of pretty ordinary market conditions DCA is not a good choice.

[jiofih]

Exactly. That theory is that the market will always go up long term (because capitalism is inherently inflationary) and historically, DCA plus holding has always given returns over a > 20y period with any reasonably mixed basket.

A “diversified buy & hold” assumes you have your entire 20y investment capital available at the outset, which is rarely the case.

[hansvm]

> A “diversified buy & hold” assumes you have your entire 20y investment capital available at the outset, which is rarely the case.

If you don't then you're effectively implementing DCA because you don't have better alternatives available -- regardless of the strategy you use, if you immediately invest spare funds as soon as they're available from a source of evenly distributed recurring income then it'll look a lot like DCA.

That's still consistent with my position of using the data you have to pick the best option you can. If you have options other than DCA (e.g., a sizable percentage people get some kind of windfall in their life), then carefully evaluate whether DCA is the right way to treat that capital. It usually won't be, even compared with dead simple strategies like a diversified buy-and-hold.

As an aside: Ignoring any kind of extreme luck, in a field like tech with rapid raises, no matter which investment strategy you choose your nest egg will almost entirely be comprised of funds from your last 5-10yrs of work.

[RussianCow]

Nothing is "100% guaranteed". There are lots of reasons that the returns of investing in index funds using DCA may dry up, or even fall over the long run—for instance, it's not inconceivable that a significant enough market downturn could bankrupt a lot of Fortune 500 companies, bringing the indexes down significantly for a long period of time. Even though these types of scenarios seem extremely unlikely, it's incredibly inaccurate to say that any such returns are "100% guaranteed".

[jiofih]

Yes, you can argue that, but it’s statistics, and includes the three big crashes the market has lived through. It’s a 20 year period for a reason - it’s how long it would have taken you to recover from 1929 if you bought at the peak just before the crash.

[RussianCow]

> It’s a 20 year period for a reason - it’s how long it would have taken you to recover from 1929 if you bought at the peak just before the crash.

You've cherry-picked an arbitrary window based on historical returns, but there is no reason that this will hold in the future. You can come up with lots of strategies with arbitrary conditions that would have given you great returns throughout the past century, but completely fail after you implement them. I don't see why dollar cost averaging is any different.

> it’s statistics

Exactly. And nothing in statistics is guaranteed. The fact that it's worked well 100% of the time in the past does not imply that it will work 100% of the time in the future. Does it seem highly unlikely that DCA will stop being an effective investment strategy in the foreseeable future? Yes. But I take issue with the "100% guaranteed" claim, and everyone should realize that no investment strategy is completely risk-free.

[jiofih]

Well, down here in the real world, a 100% statistical chance is as good as it gets. Why would you try any other strategy with historical success < 100%, or more likely, unknown?

[RussianCow]

I have this strategy where I put all of my money into the stock market on the 32nd year of the century, then sell it all off 10 years later. So far it's had huge returns 100% of the time. Is it a good strategy?

Obviously this is a wacky example and I'm trying to make a point, but you could overfit lots of different investment strategies that would have been 100% successful in the past; that doesn't mean they are guaranteed to work in the future.

And for the record, I'm not advocating for any other investment strategy. I'm just pointing out that you cannot possibly claim that any strategy is going to be 100% effective in the future, because you can't predict everything that will happen. The conditions under which DCA is effective may not hold forever, and no investment fully protects you from all risks.