Why Dollar-Cost Averaging (DCA) Beats Buy the Dip
Dollar-Cost Averaging (DCA) is a strategy where you invest a fixed amount of money regularly, regardless of stock price changes. For example, if you invest $500 in Apple stock each month:
• Month 1: Stock at $150, you buy 3.33 shares.
• Month 2: Stock at $100, you buy 5 shares.
• Month 3: Stock at $200, you buy 2.5 shares.
Over 3 months, you’ve spent $1,500 and bought 10.83 shares, averaging $138.47 per share, reducing the risk of buying all at a high price.
• Month 1: Stock at $150, you buy 3.33 shares.
• Month 2: Stock at $100, you buy 5 shares.
• Month 3: Stock at $200, you buy 2.5 shares.
Over 3 months, you’ve spent $1,500 and bought 10.83 shares, averaging $138.47 per share, reducing the risk of buying all at a high price.
DCA outperforms the “Buy the Dip” strategy 70% of the time over a 40-year period. While buying at the lowest point could theoretically provide a 9.4% annual return, the reality is that market timing is difficult. Just missing a dip by two months reduces returns to 6.5%. In contrast, DCA, which involves investing a fixed amount regularly regardless of market conditions, provides a more consistent return of around 7%, making it a more reliable long-term strategy.
Conclusion: Stay invested, don’t time the market.
Read the full article:Even God Couldn’t Beat Dollar-Cost Averaging
Read the full article:Even God Couldn’t Beat Dollar-Cost Averaging
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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