The Market Dollar-Cost Averaging Strategy

What Is It?

Market Dollar-Cost Averaging (DCA) is a reliable investment strategy that involves investing the same fixed amount in the same security at regular intervals, regardless of its price. It's a type of Systematic Investment Plan (SIP) that helps investors avoid the impact of market volatility and make consistent progress towards their financial goals.

At Cumulus Capital Management, we recognize that some investors may not have a significant amount of money to invest upfront. Instead, savings may accumulate over time through regular income sources like paychecks, investment returns, or rental income. DCA is an excellent approach for such investors as it allows them to gradually build their investment portfolios without worrying about market timing or volatility.

Long-time investors starting with a large amount of money should consider whether lump-sum investing is more suitable. In such cases, it's crucial to conduct proper due diligence and seek professional advice to ensure that the investment aligns with their financial goals and risk tolerance.

In Practice

  1. Based on your income and expenses, define how much money you can save in a period of time
    1. For example, how much money you save per month
  2. Chose a Market ETF or Mutual Fund to invest your regular saving in every X months
    1. The market benchmark is usually the S&P500
    2. For your broker, choose one with the lowest fee
    3. You can decide to invest in other markets, such as the EURO STOXX 50
    4. You can also decide to invest in more than one market ETF
    5. Cumulus Capital Management invests in ETFs according its values
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The idea behind DCA

Having savings sitting in a bank account is not ideal. The bank’s admin fees usually reduce further the earned savings. Therefore, investors should invest their savings in securities than have a higher Return On Investment (ROI).

One idea is to invest the savings “in the market” with good historical returns. The S&P500, for example, returned an average of 11.88% between 1957 and the end of 2021 (source). This return doubles the initial investment every six years.

By buying at regular intervals with the same dollar amount, investors buy more of the same securities when prices go down and less of the same asset when prices go up.

Long-term investors in Market ETFs should pay close attention to the payout dividends and decide whether or not to reinvest them immediately to compound long-term returns.

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