First you talk about psychology, and now it doesn’t matter whether the 60k is already invested or in cash?! And the “you still not getting it lol” doesn’t help either. Yea I’m out, sorry.
Wishing you all a happy new year.
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If in cash, DCA will gradually increase his risk exposure.
If in stock, DCA will suddenly decrease his risk exposure and slowly increase it again.
The only reason it matters is to determine whether lump sum will dramatically increase risk exposure. If he’s already in stock then lump sum changes nothing. If in cash, it might be difficult to take on the sudden increase in risk in one go.
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I agree. But shoudln‘t his risk appetite today be the same as in 12 months? If he doesn’t feel comfortable investing 60k now and wants to DCA, will he really feel comfortable having those 60k fully invested in 12 months?
What if the market goes up 20% during those 12 months and then crashes 40%? DCA isn‘t always reducing risks, it can also increase risks.
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I re-read the Vanguard paper and DCA wins 1 out of 3 times.
Also the very wide outcome in the first month after a lump sum is what is hard to swallow and why it can be good for some people.
When the goal is to not freak out it’s a good strategy, it doesn’t feel great if you’re down 10% immediately after investing and that’s often what triggers a rethink/pulling out of the market which would be the worst thing you could do as an investor.
In practice the median difference between LS and DCA is 1-2%, which IMO isn’t much for a 100% equity portfolio (that’s often the amount of volatility on a single day in the stock market).
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Like Cortana, I think the question of the actual allocation deserves being consolidated. It might be already, in which case, all is good, but the market can crash after the DCA is done just as it can crash after a lump sum.
Having done the DCA can provide some sort of psychological anchor but it can also ease someone into an allocation that is too agressive for their actual tolerance without noticing it.
Both can be true and only @fal can know what is best for them. If the 80/20 allocation (and the approximately 33/67 resulting global allocation - I presume, hard to assess without knowing how much is in REIT themselves) suits your objectives and your risk tolerance, I wouldn’t fret too much doing it via DCA rather than lump sum (it’s statistically less efficient but it won’t make or break your investment success and there is a tail risk involved) but I’d just take some time to assert if that’s actually the allocation I want.
As we are talking psychology, the global portfolio is more conservative than the 80/20, such that the parts of it react differently in case of market turmoil. This might help with equanimity but that also means that the 80/20 part will drop more significantly than other assets if stocks crash. An alternative could be to smoothen the allocation between the accounts and to have more stocks in taxable while choosing a slightly more conservative allocation in the VIAC 3a account.
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If in funds = risk exposure already exists, it’s a change of provider / product, not a new investment strategy. Except if OP wants to reset their allocation, get some gains today and re-invest them gradually, dca does not make sense. IMHO I don’t think that was their question.
If in cash = new allocation with a different risk profile, different way to achieve it.
I lumped sum big way end of 2021. I committed to a strategy and told myself not to sell, not to chicken out if market drops. It does not always pays off as expected (short term), 2022 was crap. However a great lesson of patience, risk tolerance benchmark, trust in your long term strategy, psychology. Had I started DCA, maybe I would have frozen buy orders in these market conditions. Actually I started DCA even more than planned with new income during downwards market to lower my average purchase price due to my bad market timing and thus increased my exposure. With great results in the end.
So YES, psychology weights a LOT in investing.
Stick to your rules. Mine has made me add a chunk to my portfolio April 1st this year, new quarter, as usual. What else but psychology makes you ride the path along missing dips, bad timing, bad luck. Not that bad though, but you have to train your brain about it.
Cortana effect innit ?
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Option 1 is your idea.
You may as well choose Option 2 with an all-world ETF (available at VIAC) for simplicity and increase by a small percentage if you want more granularity.
Even one point increase every x week(s) is possible in that case. It’s as if you’re DCAing cash with a classic monthly 3a contribution amount into a global stock portfolio. You can span that over a long time period…
Once you’ve reached the target and for more simplicity you may fall back to a standard strategy (which is more ch-biased but still a no brainer).
I have a 3a saving account sleeping as well, same amount range, bit more, I may do that. I may also lump sum, considering its weight in my net worth, but then I’m tempted to time it and freeze. DCA may just help me make the initial move especially because it’s a provider change so it implies a bit more admin stuff.
Getting rid of it is definitely in 2026 plan. Global 100 bucks are already catching up fast while started quite later on. (Yes I should have gone all-in a while ago). (As usual).
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