which just reinforces the notion that trying to predict the markets is a fools errand. It cannot be done.
At S&P 7000 I almost took some off the table. Because it made no sense.
At 6500 I thought “Damn it, I should have trusted my instincts”
Now we’re back at 7000
I’ll stay put, but I will second guess myself next week when we’re back at 6500
Does anyone have any research on what the best frequency of deposits is for dollar cost averaging? I have a lump sum I’m going to be putting into a brokerage account, and volatility is a real concern right now. Fidelity will let me set up weekly, no-weekly or monthly purchases.
I am not sure cost averaging really works, specially not in an environment where stocks move erratically, as seems to be the case now, even more so with all the manipulation going on. If you have money to invest, invest it, would be my recommendation. If you fear a big downturn, wait. But if the general movement of the markets mid to long term is up, cost averaging should not be to your advantage if you already have the money to invest liquid now. Cost averaging will happen anyway when you have more liquidity to invest some day in the future, as is to be expected.
If you want to be tactical, my observation the last months has been that President Flatulent Ineptstein does stupid things on Fridays, the stocks go down, he reverts tack on TACO Tuesdays, and they go up again. So a good day to buy is Friday late afternoon or Monday morning. A good day to sell is Wednesday morning. But not every week.
In terms of statistically likely outcomes taking a longer view I would shocked if studies didn’t show investing the lump sum wins. “Time in the market not timing the market”.)
But “works” may have a different meaning for some of us in a volatile environment: decreasing regret has value. If I throw it all in at 7000 and the market drops 10% over the week … I may be more upset that I would be from losing gains by spreading it out over a six month period.
That said my personal take is that dollar cost averaging in the case of a sudden lump sum is in my mind allocating that amount heavy in cash up front. I’d personally stick to the allocation that my volatility tolerance requires (or “buckets” requirements depending on the model)
I suggest the lump sum. Why are you concerned about short term volatility when making a long term investment?
I’ve only got my personal experience to go on, so not much use.
I’ve recently seen a 10% gain over a year on one particular stock that I put a lump sum into and then drip-fed smaller amounts in on a fortnightly basis so that the ratio of lump sum : drip-feed was approx. 60:40 after a year.
Thing is, one month after the initial investment, the stock dropped 33% in a week and then declined steadily a further 30% until maybe February this year when it started to recover. It’s been the classic U-shaped recovery and even though the current price is well down on what I first invested at, I’m ahead overall.
So I’m a fan of DCA for stocks generally seen as high enough quality to ride out rough periods, even though sticking with it often doesn’t do my blood pressure much good.
This is true over any long-term time horizon, at least in all of the studies I have seen.
Obviously which day you chose to do the lump-sum will make a difference on your overall return, but there isn’t really any way to predict which day is the right day. That remains true if you pick 10 days rather than just 1.
Right. The advantage of spreading it out is reducing the magnitude of variation of the possible results. Less big of both upside and of downside tail possibilities priced at, on average, somewhat less return long term.
It still seems to me that the better approach for the risk averse is to instead lump sum invest but in allocations that fit their volatility tolerance (“risk”) profile.
Agree.
One should have a fixed allocation plan, say 60% stocks, 30 fixed income, 10 cash. If you come into a chunk of money that you want to invest, deploy it that same way, 60/30/10.
And do all of it immediately, not dribbing and drabbing unless there’s a very specific reason to wait a few days. Like some head of state just started a war for the hell of it and markets are still (over-)reacting.
I’d go one better. Your portfolio ought to be rebalanced periodically. Experts differ on annually, quarterly, or whenever the allocation gets some preselected X% out of whack. In each case, the point of the decision criteria is to remove the temptation to market-time; just do it on the appointed date or when the appointed threshold imbalance is reached..
So a micro-optimization to your lump sum investment is to look at your rebalancing needs right now and deploy your new money to restore balance (or at least reduce the imbalance as much as possible).
E.g. if your portfolio is presently 63/29/8, then invest your windfall so the outcome is 60/30/10 or as close as the size of your windfall can move it to 60/30/10. In this example you’d go lighter on stocks, heavier on cash, and slightly overweight in FI. This technique gains tax efficiency since you have no need to sell any existing holdings in the overweight categories.
Would you vary that guidance for someone who was more “buckets” mindset?
My sense is that someone who already has bucket one funded should be more comfortable lump summing a windfall into bucket three?
And returning to a previous discussion, higher SS payments or other reliable income decreases the size requirement of bucket one.
Right?
This is exactly what I do, in addition to periodic (typically quarterly) rebalancing. But I only rebalance if I’m more than 5% or so outside of my allocation.
I’m not totally up-to-date on the buckets allocation strategy, but yes any fixed income (pension, SS) should reduce your retirement needs and thus increase your ability to assume risk in your retirement accounts. Which I think is the same as “decreasing the size of bucket one”.
ETA: @DSeid
That’s certainly a reasonable take. Big difference between somebody just starting out investing versus someone with an established portfolio & allocation and all the rest.
Regarding the general froth in markets, how do you know it’s a bubble?
When a shoe store switches its focus to AI, and the stock soars
What a weird story.
I guess Allbirds actually sold their shoe IP to another company (American Exchange Group) last month for $39M.
So I guess it’s more accurate to say they are no longer a shoe company but are now an entirely different company focused on AI compute.
Exactly.
“The Company will initially seek to acquire high-performance, low-latency AI compute hardware and provide access under long-term lease arrangements, meeting customer demand that spot markets and hyperscalers are unable to reliably service,” the company said in the announcement.
So now are their retail stores going to become mini data centers?
It’s almost like they sold the entire functioning body of the shoe company to somebody else. Leaving behind nothing but a checking account w 40M in it and an executive team that may only consist of the BoD & CEO at this point.
If they got any shares of their stock as part of the payout for the sale, those shares have now appreciated very nicely. First the pump, then the dump.
Right.
And just to highlight how irrational the market can be, at one point Allbirds was valued at $4B. Now it has sold basically all of it’s assets for $40M. It’s all-time stock chart is basically a skate ramp down from the IPO of $301 (with an IPO-day high of $648!!) to a low of $2.80.
The “explosion” @OldOlds refereed to after it’s change in focus was 175% when he posted it - it’s now over 700%. From it’s all time low to over $18 by just saying “hey, we aren’t making shoes anymore but now we’re going to do AI”. For a company whose leaders managed to lose 99+% of their value in the last 4 years. Bonkers…
Some amusing charts and data here: https://finance.yahoo.com/quote/BIRD/
FWIW I liked the shoes …
One last follow up in an article about the shift:
Just in case anybody was thinking of jumping on this runaway train.