Why Dollar Cost Averaging Beats Buying the Dip

Let's say you had the ability of a god - you could determine the exact low point of the stock market each year], in real-time, and only put your cash in at that very moment. You might assume that this ability would guarantee you could outperform all other investors.
And you'd be wrong.
Now imagine the people who expect to only buy the dip in real life. They have no such ability to know when that lowest point will be and no way to be sure they're to buying in at the best possible time.
Investors holding back from investing because they assume they can identify a better entry point sometime in the future cannot actually do this consistently over time. What is more likely is they'll suffer opportunity cost and frustration.
In his post, Nick Maggiulli makes this point using the historical record and some incredible charts. Nick is the data analytics manager at Ritholtz Wealth and blogs at Of Dollars and Data.
You can read his post here after watching this discussion with Josh Brown:
Even God Couldn’t Beat Dollar-Cost Averaging
ofdollarsanddata.com/even-god...
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[@BaccaratDegen]

I found this video two yrs later and I love it.

[@scottscriticalmass]

Currently building a position in STOR and dollar cost averaging to do so. Using the same approach with BLK, BR and NVDA right now as well. Great message and education... Cheers fellas!

[@DeesBees85]

So happy I found this channel! I love Josh on CNBC, and this video has some great info!

[@lavearwhitney1474]

This is a very clear way to express this idea! Thanks so much

[@flightman12]

love DCA - most dont go in when they are supposed to due to analysis paralysis. Get in early and have a loooong term horizon. Time in the market is key

[@brookssalvador7888]

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[@jadielemmanuel5514]

@Brooks Salvador instablaster :)

[@brookssalvador7888]

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[@brookssalvador7888]

@Jadiel Emmanuel It worked and I actually got access to my account again. I'm so happy! Thanks so much, you saved my account!

[@jadielemmanuel5514]

@Brooks Salvador no problem :)

[@martystenson9440]

Great video / post guys. Love Nick's data-driven approach to personal finance. Just followed the blog!

[@steve5678]

As an advocate of buying the dip I thought this was a compelling argument

[@alexinvests]

Great video. Love the data driven approach to building wealth!

[@RonMartinJr]

This is exactly what I needed to hear right now.

[@TheDemoDesign]

wow, this is so well put. You guys are sharing awesome content.

[@TheCompoundNews]

thank you for watching Avi

[@alexriley1525]

Best one by far. Nick's a natural. Would love to hear the follow-up analysis on finding the optimal drip feed period for a lump sum. I've always believed that the decision to drip feed a lump sum is a behavioural tool to minimise regret. As Nick said, on average 'all in' is the right choice statistically, but drip feeding reduces the regret of being on the wrong side of average. Give the investor the control and let them decide.

[@TheCompoundNews]

cheers alex

[@StudentCenterNY]

Yes. This was excellent. And Nick was terrific and I am really looking forward to that follow-up analysis. About to sell my parents' house and will be lucky enough to get a nice lump sum. Know that the odds are the best thing to do is invest it all in a lump sum. But too chicken to do it. So hoping to hear an opinion on what the optimal way would be to go about it, knowing that I'm happy to lose a little to make sure I don't get creamed. Thanks for these videos. Big fan and follower of Josh since the very early days.

[@InvestOrama]

Just added this to our BUILDING BLOCKS playlist because it's a must-watch

[@AlanHornkohl]

Great video. I appreciate the information!

[@OVXX666]

very happy with how much ive learnt from this video alone,,, :)

[@joshua11110]

This was awesome. Thanks for sharing. Would love to see Nick on here more often. I read his blog every week and it never disappoints.

[@TheCompoundNews]

Nick is awesome. Thanks Josh!

[@rafalzxz]

Subtle Batnick in the background minding his own business

[@jackneureuter5909]

This is some really good insight. Awesome stuff

[@TheCompoundNews]

thank you for watching Jack!

[@bigtex8991]

Wow. Needed this.

[@CGarrettMoore]

Is Batnick strolling around the office shoeless?

[@jamesm.3967]

Say it ain’t so?

[@mguarino28]

great video. Thanks

[@withpikachu2402]

As young investor I had FOLO. Now I am cool and only getting dips. Basically stay cool and just have money ready.

[@johamu4]

Enjoyed this one. I think the 3/10 where BTD wins was a little lost in the chatter. Would have been nice to see some charts up on the screen (like Nick's chart with the cash building in green pyramids at the bottom. But great overall video from the Compound.

[@Mohamed-ui8yz]

yo this fucking video and analysis is fantastic ,,,, deserves 1 million views

[@carmona_design]

DCA with a budget. Buy the dip (if you are confident) with extra (above your DCA budget).

[@rockymaxiful]

I come for the finance and stay for the philosophy.

[@andre-nunes]

Running a sptm/xlk 2 etf portfolio right now. I'm planning on DCAing it.

[@LawrenceDudash]

I would recommend value averaging over dollar-cost averaging. There is a book published in I think 1991 called Value averaging. I feel it is a better option if you have the time.

[@steve5678]

Is that buying the occasional small dip on a regular basis?

[@chrisd6736]

This is pretty fascinating. I would love to see a reanalysis with the recent 35% draw down due to coronavirus. I had pretty crazy returns waiting for the dip. Also interested if a hybrid approach has any value- my retirement accounts are obviously dollar cost averaging but I like to buy the dip with my taxable accounts.

[@LaidbackLuc9]

I think in the short term (24 March vs. last week) it’ll yield results, because over a six month window, the cash drag is lower. But in the long haul, you’re pretty much better off DCA because you never know if the next crash hits in 2 months or 2 years or 10 years from now and if the lows will be retested.

[@rodsalvador3608]

What are your thoughts on making small adjustments with DCA (either contributions, or allocation within sectors, or both)? Like selling a bit or lowering contributions when market valuations look a little peaky (lets say last year's January blow off rally), and then increasing them in downtrends? In other words, you're not trying to nail a perfect high or low, but adjusting your behavior with some kind of mean reverting trading discipline?

[@theamazonmaven326]

I get his point, and there’s wisdom to the (certainly not novel) message that trying to time the market is probably a bad idea for most people. But I don’t like his simplistic comparison of market timing vs. dollar cost averaging for a number of reasons: (1) it assumes one holds cash while not in stocks (one can invest in bonds and other risky assets instead); (2) it does not address other kinds of timing, for example value vs. growth, or stock ABC vs. stock XYZ, or stocks vs. bonds vs. gold, which I believe is what most “timers” tend to focus on (I bet that super-human timing abilities applied to multiple asset classes or individual stocks or even across sectors would lavishly beat a plain DCA strategy); (3) it ignores the very accessible use of leverage (e.g. betting on market movements through futures contract or options), in which case the benefit of being right about correct timing could be magnified by a factor of 2x, 5x or maybe 10x.

[@yannickgalarneau5851]

Michael listening to Lex Friedman!😂

[@merryingalong4065]

too bad i missed the dip last march started too late

[@raunholt]

There always comes another dip💪

[@jamesm.3967]

What a great video. Time IN the market is better than timing the market. Jeez. Thanks guys.Look at the James Montier book on behavioral investing. It’s the “little book” series. Similar topic.

[@jameshayes652]

Dollar cost average is good too because of (compounding)

[@averageamericaninvestor6944]

Good video.

[@TWN321]

They did not describe how they define the "dip" in their study - a 5% decline.. a 35% decline? It could make a huge difference in results...

[@ren7sp25]

Just combine DCA and double buy on the dips

[@hsk8787]

Not if you've got it in an offset. Better to wait for the dip at this kind of market

[@ianrjm969]

I don't think you need magical powers to buy the dip. For the average person (who's not interested in learning) DCA is the best way for sure. Another reasonable strategy: buy RSI oversold on larger timeframe (min daily, depends on asset) during bull run. As for selling, that's very difficult to time, maybe just have personal targets and sell upon them.

[@Alphahydro]

This!

[@andrewtaylor2785]

Also if you have a lump sum, should you drip feed, or lump sum

[@bluegillmich]

Time to buy the dip...buy now .buy....

[@InvestOrama]

A solid rule that's been going since forever. how many more videos like this before the majority of investors get it?

[@TheCompoundNews]

a million more maybe

[@InvestOrama]

@@TheCompoundNews no compound effect here then, just addition

[@Alphahydro]

I don't discount Josh's knowledge of the market but I'd like to add that Dollar Cost Averaging in overbought conditions is akin to throwing away money.

[@SP1x5]

By overbought conditions do you mean when the value of a stock for example is high?

[@davewhite756]

How many times did a mega dip follow a 10% dip in the same year

[@tylerotaniconlon1990]

What if I have limit orders for let’s say VTI ETF currently at 300 Drops to 295 limit buy 1 share Drops to 290 buy 2 285 buy 3 280 buy 4 Etc Are you saying buying same amount on a weekly basis still wins ?

[@rcnblackhawk07]

Time in market > Timing the market 🧐

[@mjhmn]

Mike!

[@seriouslyyoujest1771]

God couldn’t beat dollar cost averaging. I’ll be borrowing that, thank you

[@bilaliq1449]

so if market returns 10% per year on average does it include the Inflation of 3%?

[@HumbleTrader001]

Likely it is 10% nominal returns, not real returns.

[@hunterhills3047]

Buying the dip doesn’t work for a perpetually gaining stock like the SNP500. I agree with that. If you have a stock like Tesla that is quite volatile and rather easy to predict to sell the highs and buy the dips. It’s also a new company that will grow for a while.

[@Mike-mc3sh]

In a downtrending market or bear market, DCA is best because you will never catch the bottom so averaging in is best strategy. In uptrending bull markets lump sum is best because if you DCA than you will be missing out on potential profits as time goes by. You are better off buying 100 at the start of the month then buying $50 a week.

[@antoniocolella1445]

Ya but problem is to know which market it is.i ended up dollar cost averaging but wud of been better to lump sum but how was I suppose to know.

[@Mike-mc3sh]

@@antoniocolella1445 an easy trend indicator is to use a moving average. If you want to be more conservative use the 200 day moving average or you can do the 100 day for more sensitivity. Keep it simple, when price is above the moving average do a lump sum, when price is below the MA line then switch to dollar cost averaging.

[@JTDyer21]

There's no way anyone can time the market. A consistent contribution to your investments, in good times and bad, will yield maximum results.

[@healthiswealth8153]

'time in the market'

[@RJD1308]

So what happens if the guy who knows exactly when the market lows are going to happen invests each month just like the DCA guy but he invests at the lowest price each month?

[@giffy7962]

Just read this and LMAO'd

[@ege49]

He is either God or something very close

[@NavShay]

Poland springs? I thought the rich would only drink Smart water

[@TheCompoundNews]

we're middle class guys.

[@peterhammond7943]

uploaded on 2/13/19 - if only you could have known what was to come in 1 year!

[@seriouslyyoujest1771]

I think if you can Hodl for two halving’s with Bitcoin, history is in your favor that 8 years out, plus one, you won’t care much.

[@sukkeri]

Why not just do the lump sum and use a stop loss.

[@derrickmichael-simpleautom2488]

If DCA beats perfect timing what is the need for portfolio managers, advisors, etc...? Honest question.

[@HumbleTrader001]

To prevent you from doing stupid things like selling in a panic during a correction?

[@trollinsky2954]

There is no need for a portfolio manager. They never beat the market over a long period of time.

[@ege49]

They actually use DCA, but will bamboozle you with fancy words to think that they are doing anything exceptional

[@giezioba7214]

I wonder if the same thesis would hold true for Japanese investor playing with Nikkei index for the last 30 yrs. My guess is... no.

[@mspaic10]

It depends when you started. If you started 30 years ago, then probably, yes. Since 2003 (approx 15 years), it's up 185% plus dividends. If someone started 30 years ago, you'd have less money the first 15 years, then you'd see considerable appreciation the last 15.

[@giezioba7214]

@@mspaic10 And that's my point. If you were a Japanese investor, (with a brilliant W. Buffet buy and hold strategy), put all your money in Nikkei on January 1990, you would still be underwater today (negative 15% ) and yes, including all the re-invested dividends.

[@mspaic10]

@@giezioba7214 This whole video is about dollar cost averaging (putting you money in slowly over time) and not doing it all at once. Besides, most index investors would tell you to globally diversify to mitigate this risk. You can't have your whole nest egg in one country...

[@giezioba7214]

@@mspaic10 It depends how you look at it. You say "(putting you money in slowly over time) and not doing it all at once" So, imagine we are in March 2009, at the S&P 500 financial crisis moment. Imagine, you have all the money to invest and you would recommend investing slowly, instead of going all-in 100% ?? That would be a big mistake, leaving so much money on the table. Its all about timing. My point is.. for all these financial guru advises, I can think of a scenario when they would be wrong. They all rely on the past performance... Where is guarantee, that US stock market (which was performed phenomenally so far for the last 30, 50,100 yrs... won't turn to act in a future just like a NIkkei market did for the last 30yrs?

[@xMohJeex]

@@giezioba7214 the US market is not a free market in the sense that it might go down and never recover back. It's backed by powerful vested interests that will do everything possible to increase demand and restore confidence in downturns to maintain its "stability" as they call it. You need to understand that you're dealing with a very particular form of capitalism... The kind that will never let its financial market, which affects the whole economy of the country and the world, go into oblivion. Check the mandates of the Fed. It's one of them.

[@ArchimedeanEye]

DCA & buy the dip when you can

[@watchumean2869]

In other words, just keep buying

[@AislingMonahan]

But isn’t the stock market in a bubble right now

[@HumbleTrader001]

But yet it is substantially higher than when you originally posted this comment.

[@xMohJeex]

And still higher now... And will be higher 10 years from now.

[@Seasonednuts]

We do now lol

[@praisenworship3]

But then March 2020 and Covid-19 happened

[@amandamate9117]

crypto

[@scottlouis6116]

Haha this aged well

[@Vladm557]

Actually it's still very much accurate. As long as you stay consistent, not panick,and keep dollar cost averaging then over time you will end up on top. DCA is a multi year strategy, many years infact if done right, and should not be altered by any one event enable to get the best outcome

[@junkman713]

Bogle.

[@OluwatobiGiwa]

Don't say God cannot beat DCA. Regardless of the point, the person was trying to pass. That's a wrong comparison. Same God inspired DCA. It came from Him. A very tiny and inconspicuous part of His investment wisdom, amongst other treasures. Don't pick on God, pick on your poor investors. May the Lord forgive you.

[@deecee1522]

The intro The intro music is really gay