Viewing a single comment thread. View all comments

tuctrohs t1_j6cs8sf wrote

A more interesting comparison might be to invest $1,200 a year, two different ways. One would be to invest $100 a month, and the other would be to look at the average share price over the year, figure out how many shares $1,200 would buy you, and buy 1/12th of that each month. That way you'd be still investing your money over time in a similar way, but you'd be missing out on the specific benefit of dollar cost averaging of buying more shares when the price is low and fewer when it's high.

All your showing here is that starting to save for retirement early is better than doing it later.

11

Picksologic OP t1_j6csvt0 wrote

I may try to chart your suggestion. Since I'm new at this, I was trying to figure out how DCA affects your investment, but as others wrote, if the stock only goes up LS will win every time. I just learned what is obvious to more experienced people. Edit:. Is there a real world way to make a fair comparison? Your method only works in hindsight.

6

tuctrohs t1_j6cwyg3 wrote

I'm not suggesting that method as a good strategy. I'm suggesting it as a comparison to show the benefit of DCA is a simple, unbiased way.

It won't show a huge advantage in this case, because the main story on Tesla stock was the several huge increases. Where it shows a clear advantage is when a stock has a generalizing trend, but has a lot of volatility.

If you want a comparison to what a naive investor might do instead of dollar cost averaging, rather than a neutral alternative like what I suggested, it could be that each month you put $100 into your bank account, and then look at what the stock did over the past month. If it's been steady, you invest $50. If it's been rising gently, you invest $100, and it it has been rising rapidly, you invest everything in your bank account. And if it has been falling, you invest nothing.

3

Picksologic OP t1_j6d3lgd wrote

I just looked up Value Averaging and it suggests investing more when the stock is going down and less when it's going up. I'm curious about your approach.

1

tuctrohs t1_j6d4y65 wrote

I seem to be having trouble communicating here. Absolutely, dollar cost averaging is the way to go. The other stuff I'm suggesting, I'm suggesting because it's worse, and if you want to show how good dollar cost averaging is, you need to compare it to something that is worse, but that somebody naive might do. I'm suggesting these for your plot, not for your investing strategy. For investing strategy, dollar cost averaging is the way to go, unless you are a genius or you have a better understanding of the particular market and company, then is available to expert investors.

3

Picksologic OP t1_j6d67aq wrote

Ok I gotcha. I'm a little slow on the uptake since I'm just getting into this. I'm now trying to figure out the best way to get the annual averages in my chart. Anyway, thanks for all the guidance.

2