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Comment by ct | Hacker News Reader

with DCA (dollar cost averaging) let's say right now you started buying at the market bottom. And so you're just averaging up in price each month you buy. In this instance it would've been better to have bought everything all at once in the beginning.

Everyone seems to always hail DCA as the best investment advice ever but fail to realize it's flaws as well.

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It's true that one can do worse with DCA. But if stocks go up one makes money, just less. And if they go down one loses money, but less. In other words, one is more likely to get a return closer to the long term average, which is the objective.

It boggles my mind that so many people are complacent with wanting a return close to the average. If the average is negative then is that a good thing? No. People think the market will always go up -- but for the limited data that the stock market has been open there's less than 100 data points (years) to say with a 98% confidence level that the market will always go up.

If you've been averaging starting at the top of 2000 and putting the same amount of money in each month you'd be losing money right now 10 years later. You can say well I'm not retiring in 10 yrs and would be saving for 40 yrs. But that's 20% of the time which is a lost time opportunity of a decade.

The secret of dollar cost averaging is vary simple it let's you buy into the market at below the average price. That big dip at the start of 09 made a lot of money for any using dollar cost averaging not so much for people who where already in the market. As to average returns, investing is not going to make you rich, if you plod along for 35 years you can comfortably retire which is not a bad thing. If you want to get rich you need to do something else, on the other hand if you are rich maintaining that wealth is more valuable than significantly increasing it.

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