Dollar Cost Averaging Is A BAD Investing Strategy. Do THIS Instead

Dollar Cost Averaging is a very popular investing strategy, but a lot of people get it very wrong.

Unfortunately in the case of intentional Dollar Cost Averaging, the investor will on average lose money compared to investing in one go.

And in this video I explain exactly why DCA is not a great investing strategy.

But there IS a good version of Dollar Cost Averaging - the problem is that it is the unintentional version.

And not only is that way of investing good, but it also gives you a way of improving your investing strategy further by being smart with the stocks you choose - I share a specific tip on how this way of Dollar Cost Averaging can work.

☕️ JOIN MY PATREON - DISCORD, BONUS VIDEOS, TARGET PRICES, MODELS & MORE

💵 GREAT INVESTING APPS I USE

GET A $10 BONUS WITH LIGHTYEAR (UK & Europe)
You need to use promo code "Sasha" and the bonus is awarded after your first trade.

INTERACTIVE BROKERS (Global - Main investing app I use)

DISCLAIMER: Your capital is at risk.

DISCLAIMER: Some of these links may be affiliate links. If you purchase a product or service using one of these links, I will receive a small commission from the seller. There will be no additional charge for you.

DISCLAIMER: Trading 212 provides execution-only service. This video should not be construed as investment advice. Investments can fall and rise.

DISCLAIMER: I am not a financial advisor and this is not a financial advice channel. All information is provided strictly for educational purposes. It does not take into account anybody's specific circumstances or situation. If you are making investment or other financial management decisions and require advice, please consult a suitably qualified licensed professional.

[rustygear]

Completely disagree. Some of your logic is incorrect. You said DCA would lose you money because the market tend to go up. That's just mathematically wrong. You don't lose any money, you just gain less than if you put all the money in at the start. The point of DCA is to reduce risk, but at the cost of reducing gain as well. It's good for volatile stocks where price fluctuate 15 to 30% a week like Tesla for example. If you dump all your money at the peak of TSLA stock, you might see a loss for months. DCA would guarantee you make steady gain.

[jstar]

I've always thought of DCA for putting in what you can afford each month to win over time more so then taking a large sum of money and spreading that out over time. Two different things in my mind. Go all in with all the cash you want to invest now then DCA each month going forward.

[ColorOfSoundSalad]

Poor description of what dollar cost averaging is trying to achieve on several levels:
a) DCA is supposed to reduce the risk of losing money. It is natural to expect a reduction in P/L if you take lower risk (no free lunch after all). All discussions that do not consider risk are unfortunately flawed. Please provide a reference that shows DCA underperforms on a risk adjusted basis.
b) DCA can be applied over vastly different intervals and for different purposes. If you want to average in the market over several years, it is obvious that the market is expected to move up and one could miss on higher profits due to lower exposure. But if you want to average over a day-week (i.e., guarantee that you buy close to VWAP) then market direction is essentially random. If you want to reduce exposure to significant market risks (e.g., FED tapering, interest rate changes, covid, etc.) you can DCA over several months. If a company has an unproven business model, spreading purchases over multiple quarters is a viable strategy to increase exposure gradually as the company proves itself and becomes less risky. DCA generally is a very useful tool to deal with various kinds uncertainty.

[oneinchpunched]

Thanks for making this video. Very needed. This is how I have invested for some time. A mix of DCA and Opportunism among your favoured stocks :) I have always wondered about the DCA and not really come to grips with it. It always felt non logical most of the time. Nice to know that a savvy investor like you use the same "method" as I do, which to me is not really a method, but common sense. Again, much needed video.

[Ro-xosy]

Vanguard did a study in 2014 i think where they found that in MOST instances, lump sum investing wins out in the long run, but not by a huge amount...obviously this only applies to index/etf investors though. The issue with individual stocks is that you have to consistently be right in your picks over a very long time, which shifts the odds out of your favour, compared to following the overall market which on average goes up. Obviously there are always the arguments of "if you invested on this day right before this huge crash if would take 10+ years to get back to your initial investment amount" however- this always assumes that you then never invest again after that initial lump sum...

[chillinwithscripture]

Hej Sasha. Very informative video. Im new to investing, just 3 months ago I bought my first stocks. If one has a monthly savings account in etfs and so forth, is it not dollar cost averaging in that case? Because you are putting in money every month and that money is invested in a series of etfs that you choose. Anyway, would love your input. Thank you very much

[uo]

One of the few financial youtubers speaking the truth instead of repeating what's fashionable.

[mauroclerici]

DCA is a concept that you can use in your investing stategy and eventually twist according to your needs in terms of timing amounts per time based on current asset value or decline percentage etc... but the point here is that it might not fit everyone as it requires years of patience as well as doing a thorough due diligence at the beginning and a review overtime. So patience and study time are mandatory, just like for any other investment strategy

[arigutman]

The dollar cost averaging strategy is a great problem to have in my opinion. Fact is timing the market is impossible so it is better to have time in the market than time it! And what is more, you’ll never lose the pick up on discounted stocks when there is heavy market volatility, 🙌🏻 🚀 💵

[ladyala]

Well DCA works for me- I invest the same amount daily in 2 ETFs (bull and bear market) and it works wonders for me.

[lildvl]

Question to you guys, whats the difference between selling it now and buying when its lower.. vs dca?

For Example, lets say i bought X at 50 and im thinking of selling it at a loss. Curent price of X is 40.. now whats the difference besides losing $10 if i sell my sol at $40 and buying at a lower price (lets assume that the current price is $30). Wouldnt it be better to do that i instead of DCAing since there is less risk on losing more? Im not sure if this makes sense and if the math is right, that is why im asking and maybe people can answer this question. Would love to know the opinion of you guys in here and if you happen to read this then may he can give an opinion on this? (Not advice, just opinion on my current thinking)
In summary:
What’s the difference if i sell now at a loss and buy at a lower price vs DCA? wouldnt it be a less risk if i sell at a loss and buy back at a much lower price to get back those loss instead of dcaing when i know that the price will keep going down anyway?

[davidwelburn]

Do you have a list of stocks that you invest in, or that are on your watch list? Thanks.

[EchadLevShtim]

If you manage buying at or near the 52 week low, you can choose to drop 1000 on that stock confidently, but I personally drop 100 first and watch it for a week or so before I bump it. Usually a dip happens when the market opens, sometimes around lunch. Other lists im waiting for the stock to drop 20-50%, because if the shares are low that 1000 bucks will buy more shares. So thats always a good time to Go Big.

[blueepinkk]

Completely disagree with your opinion.

People that choose to DCA decides to reduce their risk for their capital and not to optimize the investment.

People that choose to DCA is having the view that market will go up in average. Or else they won’t invest at all.

People that choose to DCA because they do not want to subject to behavioral bias and avoid wrong call when affect them.

DCA is not to optimized return even the view is market is going up more than down on average. They mainly do it to overcome their their behavioral bias and true to “low risk low return”, people that DCA do not expect to make higher return than those with lump sum investment. That’s not their goal.

Their goal is able to sleep well at night, stay optimistic it will eventually work out and it’s okay to make a bit less!

[samk]

Sasha, what would you advise if you get a very large lump sum of money. Would you still put that all into the stock market, following the principle of DCA? or keep some liquid, i guess incase there is a crash in the market.??? If and when things drop, if you don't have any money to invest, it unfortunate to lose that opportunity to further invest. Your advise?

[randallgonzalez]

Based on your theory, I have accumulated a large amount of money because I didn't know how investing works. With that large amount of money, would you just put it right away into the market? And then progressively add any new money into the market?

[mufaddalkathawala]

Really good idea. However, the idea would require alot of researching into individual stocks which would get really time-consuming.

Do you have any good ideas for using dollar-cost avaeraging technique while purchasing ETF's which provides you wide diversification without much researching into individual stocks?

[Pieter]

Excellent video. Dabbled with DCA and value averaging for many years. Bad, bad idea & lots of regrets. Abandoned this approach as indeed 2 out of 3 times, lump sums trumps DCA.

[ashepe]

By dollar cost averaging you're reducing the risk of "buying on the top"; this comes at the price of missing out on gains on average. If you're averse of risk and have relatively short timeframe it might make sense to do it?

[anrtheace]

Smart! One of the most important rules of investing is to understand the psychology of investing