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Dollar Cost Averaging, With Historical Data

Updated on April 20, 2013

Dollar Cost Averaging

Source

Dollar Cost Averaging - Mtyh or Not?

Dollar Cost Averaging (DCA) has been bandied about by financial entities for awhile now. I have personally heard of numerous financial advisers advocating DCA as a prudent form of investing. So now, what is DCA?

To make the term simpler to understand, DCA means (according to me) to average the cost of buying a dollar worth of something. For the sake of this article we would look at investing instruments (equities, bonds, funds e.t.c.).

The premise is this; markets fluctuate and it is not easy to time the market. To make the most of your hard-earned money when investing, you should invest at regular intervals with the same amount of money.

But, does it work?

To test this concept, I have taken the prices of a few stocks and analysed the returns if we invested yearly (1st trading day of July) and monthly (1st trading day of the month). I have taken unadjusted, closing prices from 2002 when possible (dividends not re-invested, price is at the end of the trading day). Only Google didn't have prices from 2002 as it started trading in 2004.

The Figures

Company
Total Invested
Holding Worth (invested yearly)
Holding Worth (invested monthly)
% Diff. (if invested monthly)
Google
$12,000.00
$18,013.20
$13,906.89
-29.53%
Apple
$12,000.00
$146,117.62
$129,176.29
-13.11%
Morgan Stanley
$12,000.00
$4,518.64
$5,099.50
11.39%
Deutsche Bank
$12,000.00
$5,798.27
$6,563.36
11.66%
Becton Dickinson
$12,000.00
$17,516.02
$15,185.39
-15.35%
Walmart
$12,000.00
$16,498.19
$16,186.92
-1.92%
Returns if we invested the same amount yearly as compared to monthly

The figures are quite telling; 4 out of 6 stocks returned higher rates on your investments when you do DCA on a yearly basis as compared to on a monthly basis. The only stocks returning more were banking counters, which, after the 2008 meltdown, might not be the most accurate counters to use...

This runs contrary to the frequency in which financial advisers recommend. I will run some figures on funds and bonds next. Stay tuned for more!

The Figures

Returns From DCA; Yearly vs. Monthly
Returns From DCA; Yearly vs. Monthly

Disclaimer

The figures are culled from Yahoo Finance. All opinions expressed here are my own; please consult a financial professional should you be in any doubt.

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