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Pobeka

(4,999 posts)
Mon Jan 21, 2019, 09:06 PM Jan 2019

Hindsight is 20/20 and the power of dollar cost averaging

So, here's the deal. Last year (calendar year 2018) I made 5% in the market, mostly with VTI in vanguard. I figured after the GOP got their tax bill in late Nov of 2017, the market would react, and I moved a bunch of $$ into the market at that time.

It did work. Part of my strategy is don't be greedy. I only need 2% to make it in the long run, and I also have enough cash to come back from a market collapse. So, at then end of January / early Feb I had made 4%, and decided to start getting out via dollar cost averaging. But I saw what was happening and completely pulled out I think on Feb 4 or so. By Feb 4 I had made 3.25% (or so).

I sat out the rest of the year, getting money market rate (which was about 1.75%), so by the end of the year I was up about 5%.
---

I'm a programmer (Perl is my language of choice), and started asking some what if's.

The VTI price peaked on Jan 26, and bottomed out on Feb 8. It took until August 17th for it to come back to the Jan 26 value.

So, I wondered, what if I had been sitting at a point on Jan 26, and started dollar cost averaging my way into the market over a period of 45 days, where would I have been by August 17th -- and pulled everything out on Aug 17 into money market.

I have factored in the additional days each installment would be invested in the money market.

It looks like this:

installment at day 0 (invested for 204 days) gains 0.21%, (1.05% with dividends)
installment at day 15 (invested for 189 days) gains 9.71%, (10.63% with dividends)
installment at day 30 (invested for 174 days) gains 4.62%, (5.50% with dividends)
installment at day 45 (invested for 159 days) gains 2.97%, (3.84% with dividends)

mean gain is 4.38%
mean gain with dividends is 5.26%
total days in money market is 136
annual gain is 8.28%
annual gain is 9.16% with dividends

So, last year, I could have made 9.16% instead of 5%, if I had dollar cost averaged my way back into the market instead of pulling out and holding. But it is hindsight, you can't beat yourself up too much over hindsight. Nonetheless, it is a lesson.

I find myself once again sitting here with everything in the money market, with a stock market that may already be somewhat depressed (or corrected if you prefer), and contemplating this lesson. Given the consumer confidence report, I'm thinking the market may drop some for a day because of that, but do the wild swing and recover in the next day or two, but the big if's are what happens regarding the government shutdown, and Mueller's report. I think Mueller's report is going to be a big "Oh sh*t" moment that will negatively impact the market.

Any thoughts?

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Hindsight is 20/20 and the power of dollar cost averaging (Original Post) Pobeka Jan 2019 OP
I clawed my way back after the Reagan/HW crash and the Squinch Jan 2019 #1
My father is my financial adviser BigmanPigman Jan 2019 #2
I hope the ACA stays strong, and med expenses go down for all americans. Pobeka Jan 2019 #3
Thanks. I think the whole country needs a giant Band-aid BigmanPigman Jan 2019 #4

Squinch

(53,189 posts)
1. I clawed my way back after the Reagan/HW crash and the
Mon Jan 21, 2019, 09:47 PM
Jan 2019

W crash. Now a poo-flinging monkey is in the white house. Like you I got out in Feb, and I'm not going back in any time soon.

BigmanPigman

(52,357 posts)
2. My father is my financial adviser
Mon Jan 21, 2019, 10:17 PM
Jan 2019

and he is not greedy either. I am spread out all over the place financially. "Don't put all your eggs in one basket" is our motto. I didn't make a bunch and I won't lose a bunch either. He is a Vanguard fan from way back too. He learned from his parents to be frugal (the depression) and that is how I was raised. I saved every penny I earned and lived a frugal life but now may lose it all due to being sick before I could retire and now have the ACA. If that is taken away I lose everything very quickly. Something is very wrong with our capitalist country and healthcare.

Pobeka

(4,999 posts)
3. I hope the ACA stays strong, and med expenses go down for all americans.
Mon Jan 21, 2019, 11:44 PM
Jan 2019

Health care is a crisis of financial abuse in the U.S. I hope you fair well...

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