[ad_1]
Although the two investment strategies may sound similar, in reality they are two different concepts. DCA, or rupee-cost averaging in the Indian context, means investing a fixed amount at regular intervals, regardless of whether stock prices are going up or down.
On the other hand, the current mantra of retail investors on Dalal Street, buy dips, suggests investing only when the stock prices are going down.
Prima facie, it appears that buying a dip is a smarter strategy than a boring DCA and will perform better most of the time. However, historical market data indicates otherwise.
“Buy dips underperform DCAs by more than 70% over a 40-year period starting from 1920 to 1980. This is true despite the fact that you know when the market will bottom out,” says New York-based Magiulli. Ritholtz is the Chief Operating Officer and Data Scientist at Wealth Management.
In a recently published book by HarperHe explains that buying dips only works when you know a serious downtrend is coming and you can fully time it.
Sharing data for the S&P 500, Magiulli says buy dips in the 1920s (due to the severe bear market of the 1930s), with closing prices up to 20% higher than the DCA.
“However, it stopped doing so after the bear market of the 1930s and continues to get worse. Its worst year of performance (relative to DCA) was immediately after the bear market of 1974 (investment debuted in 1975). Happens later,” he said.
This 1975-2014 period is particularly bad for buying Dip fans because it remembers the bottom that happened in 1974. Starting in 1975, the market did not hit the next all-time high until 1985, meaning there was no dip to buy until after 1985. Due to this unfortunate timing, DCA is easily able to outperform.
Bachelor of Economics from Stanford UniversityMagiulli also runs the famous finance blog OfDollarsAndData.com.
In the book, which provides some simple, practical and actionable advice on not only saving but investing, he argues that if you keep buying a diverse set of income-producing assets like stocks, bonds, etc., you end up building wealth. Will do it easily.
So how is the Just Buying mantra different from DCA?
The difference between “DCA” and “just keep buying” is that just keep buying has an underlying psychological motivation. It is an aggressive investing approach that allows you to put your wealth creation on autopilot. Comparison of dollar-cost averaging It is very easy to say or remember,” he told ET Markets over email.
Backed with easy to understand data, this book is packed with stories and anecdotes to explain all the 5W’s and 1H’s of saving and investing. Magiulli doesn’t shy away from countering conventional financial wisdom and coming up with arguments like “credit card debt isn’t always bad” and “even billionaires don’t feel rich.”
[ad_2]
Source link
