Lump Sum Vs DCA vs Buy the Dip : Which one has worked out for you?

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:

$1 Trading fees (i'm using interactive brokers)
Dividends not reinvested (because of the effect of trading fees)
Residual amount from each DCA is not reinvested (again, trading fee effect)
During each DCA, i can either only buy on the 13th of each month or later than that (to simulate salary inflow)
Making only 1 trade per "dip", I use the 50-day moving average to time my "buying" of the dip, buying when price dips towards the 50-day moving average or break above the 50 day moving average.

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!

Discussion (3)

What are your thoughts?

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Not a financial advisor

22 Sep 2021

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

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CTKS

13 Sep 2021

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 :-)

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