Dollar cost averaging (DCA) strategy

toothdoctor

Hi

I know that lump summing into the market beats DCA 60%+ of the time but let's just say you wanted to DCA in, what is the best strategy?

Traditionally DCA would involve making monthly payments, so 12 payments a year. With the likes of T212 you can set pies which allow you to invest daily, weekly or monthly with minimal efforts to the user. So can you see any downsides or upsides to investing daily instead of weekly or monthly? (365 payments a year instead of 52 or 12). I assume daily contributions will smooth out the highs and lows of the market more but does this make a significantly difference?

Many thanks

InvesterJones

No difference. The result is the basically the same - if you have payments equally spread over the year you'll end up buying the average price for the year (the A in DCA) - making more or less payments doesn't change anything as long as the spread is the same, you'll still buy the average over the year. All more payments do is guarantee you don't miss losses or wins, but they would still tend to result in the average by the end of the year with monthly so not a lot of difference.

Aretnap

There will certainly be more smoothing with more frequent purchases, but as you are investing for years or decades I would have thought that the benefit of investing weekly over monthly, or especially daily over weekly, was pretty marginal. 

The other thing to keep in mind is fees. Not sure what T212's look like, but often there will be a cost per transaction which means that any benefit from very frequent transactions is more than cancelled out by the extra fees. Many platforms traditionally charge discounted transaction fees for regular monthly investments, which makes monthly a particularly good compromise between smoothing out the ups and downs and keeping fees down (and also fits in with most people's pay frequency).

wmb194

Aretnap said:

There will certainly be more smoothing with more frequent purchases, but as you are investing for years or decades I would have thought that the benefit of investing weekly over monthly, or especially daily over weekly, was pretty marginal. 

The other thing to keep in mind is fees. Not sure what T212's look like, but often there will be a cost per transaction which means that any benefit from very frequent transactions is more than cancelled out by the extra fees. Many platforms traditionally charge discounted transaction fees for regular monthly investments, which makes monthly a particularly good compromise between smoothing out the ups and downs and keeping fees down (and also fits in with most people's pay frequency).

T212 currently has no account fees and doesn’t charge trading commission but where relevant you pay stamp duty or the foreign equivalent and FX fees (0.15%). 

Another option for this sort of thing would be InvestEngine. ETFs only but no account fees or commission and has a regular auto-invest feature, including weekly.

masonic

Why limit it to daily? You could further divide into hourly or 5 minute intervals

In the end it comes down to practicalities. People often receive a monthly income and invest from that when it becomes available to them. So that is what implementations of DCA tend to align with.

Is an average of 12 prices over a year going to give materially poorer averaging than 52 (weekly), or 52 vs 250?

Next you'll need to decide how long to DCA for. Research suggests that around 6 months is the happy medium, but whatever period you choose, markets can wait that long before crashing.

toothdoctor

Thanks all. Yes T212 offer no fee on trading. May stick to trading monthly in my SIPP with IE and weekly with T212. See if it makes a difference