Advertisement
We know that lump sum investing beats Dollar cost averaging (DCA).
However, a lot of investors are also implementing a 'buy the dip' strategy. But has 'buying-the-dip' outperform a DCA strategy?
Curious to find out if anyone has successfully implemented a buy the dip strategy on either a stock or an ETF and gotten far better returns than if they had Dollar cost averaged?
Before this, i decided to do a bit of testing (using past 2 years of data) on the VOO (which tracks the S&P 500) starting from September 13 2019 with $12000 of starting capital, and allocating $500/month for the DCA strategy and $1000 per trade for "buying the dip".
Assumptions made:
Result:
I found that Buying the dip only slightly outperformed a DCA Strategy on the S&P 500.
Open to comments/criticisms about my testing too!
3
Discussion (3)
Learn how to style your text
Reply
Save
Hmm this is a very interesting qn. I think either could outperform the other. Imo, the point of implementing DCA/buying the dip is more a psychological benefit to keep us continually invest and have conviction. If people could predict market bottoms the best strategy would be to always buy at the bottom. Thats why I think the more reliable alternative is to make use of a method that can help us manage our emotions.
Interesting research! thanks for sharing :-)
Reply
Save
Write your thoughts
Related Articles
Related Posts
Related Posts
Advertisement
Lump sum beat DCA is depend on timing too, so if one guy lump sum at 2008 bottom, of course he going to say he win DCA.
All the methods you mentioned can out perform each other tbh, it is just depends on the investor skill whether he/she invest at the right time or which method suit them more.
Asking a newbie to invest using 50MA or lump sum, he/she likely will lose to those using monthly DCA
*anyway may be you should use 10 years to do your test, not just 2 years which the crash just happen on 2020 only, not accurate enough