Help me decide between VWRL or SWDA+EIMI

Investing / Portfolios
43

I think, with the current and scale of restrictions imposed on social and travel, it is appropriate to call it a “non-normal” time." It might have some implications over the longer term, but things won’t stay like this forever. Most of it is temporary.

I am not saying one strategy will beat the other. But DCA is a way of reducing shorter-term volatility risk. And, I’d argue, downside.

Because this time is really different: For instance, the U.S. unemployment rate has sharply risen to 15% for April. It has multiplied over a mere weeks, and the figure is expected to surpass 20% for May. That’s the highest since the great depression 90 years ago. Yet stock markets like S&P 500 are only 10% below its all-time high reached mere weeks ago.

I don‘t think so. It is a special situation.

It’s a long-term journey. Like completing an assessment with a long exam, climbing a high mountain, or just covering a long distance to travel.

You aren’t going to get far by going slowly throughout, overanalyzing things to find the best route all the time, carefully weighing every step twice or thrice before taking it. Also, by standing still and doing nothing, you’ll be achieving nothing.

Yet, on an unknown und unforeseen route, there will be (a few) times when you’re lost and confused. In these moments it might be sensible to not blindly plough ahead - but take a few deep breaths and go at a slower pace. Aren’t you risking losing time that you’re not able to reclaim later? You are. But I think it’s still a sensible strategy in some circumstances.

If you compare valuations to a couple of months before, I think stock markets are right now either lost and confused - or an outright bet on things normalising swiftly, with virtually no economic outfall. I personally, I am a bit unsure and lost and confused, frankly. That’s why I’d take a cautious approach and dollar-cost average. Which is what I’m currently doing in fact.

44

I don’t get it. The only reason you DCA is because you expect the market do decline. So why not wait for your expected dip and lump sum then? Or why not wait till this “special situation” is over and you feel like we are back into normal times?

45

To safeguard against a possible decline.

Unemployment at a 90-year high.
Stock markets at 90% of all-time hight.

It seems conceivable.

Because it might not happen (again).

Markets might rise earlier, in anticipation of that.

The strategy is very likely to not lead to the best possible outcome(s).
It is also quite likely to avoid the worst possible one(s).

The moniker “averaging” is pretty appropriate.

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46

And what happens after you are finished DCA? Fully invested in the markets with risks that first seemed too high to take fully? Sell everything when bad news are around the corner and DCA back in? Basically the same thing you are doing now?

I’m not against DCA btw, just trying to understand the reasoning behind it.

47

The only reason I’d see in favor of DCA is that it might build up some discipline: get used to regular investments and stop delaying things,

However, if I’d need to “trick myself” into investing like this, I’d rather fundamentally be questioning my investment strategy.

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48

I lump sum invested my life savings at the ATH. I’ll lump sum invest my 2nd pillar in the coming days, despite the SP500 being at 3000+ with 40 million unemployed, starting civil war, the pandemic and international tensions. Why? Because the odds are never better for DCA.

If I wouldn’t do it, then being 100% into stocks would basically be the wrong AA for me. There is no return without risk.

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49

Yes. Where’s the problem with that?
Didn’t you claim yourself that going all-in would be the best strategy over the long-term?

One might find them too high at this very specific time - as of now.
Again: it really is different this time. It is unprecedented in recent history.

That’s why one might want to enter the markets slowly.

You might eventually find yourself wrong.

Your reasoning is extremely fatalist.

50

Thinking in special situations and non-special situations or normal times and different times might harm your longterm returns massively. This kind of thinking leads people to panic sell in March 2020 and still waiting to re-enter the market again. Just look up all the threads on Bogleheads.

You are basically not trusting the stock market right now. What makes you think that you won’t be in this situation anymore? When did stock markets ever make sense in the past?

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51

You could have done the same at the all-time high in 2000 - there had been enough people bewildered by valuations and telling you that the markets were overvalued and one shouldn’t trust them.

You’ve have achieved an annualized return well below the rate of inflation over more than the next 12 years - and actually have lost money with CHF as base currency.

Exactly, I’m not trusting them.

The markets didn’t make sense in 2000 either.
Nor in late 1980s Japan.

And the ones who called it were eventually proven right.

52

The greatest thing about investing the money as soon as it’s available is that you don’t need to worry about when and how much to buy. The more time passes the less will it matter. Any new windfall will be just a small addition to your existing portfolio, you start entering full auto investing mode. That’s my plan. Invest every month what I’m able to, ignore the news and just stay the course for the next 20-25 years.

53

Worth listening to. There are a couple of interesting take-aways. Lump sum beats DCA even in the 95th percentile of PE. It also beats DCA when markets declined -20%. There is basically no scenario where DCA was better on average than lump sum.

So it really doesn’t matter how you feel about the current market. The odds are always bigger for lump sum investing.

54

That’s merely historic evidence. But the current restrictions on public life and international travel in large parts of the world are drastic and unprecedented (in the history of globalised electronic stock markets).

Not always. More like in 95% of cases (though that wording’s not strictly correct in statistical terms). Yet the current situation is very different from 95% of history - that’s why one might want to not sole rely on “proof” that held true in only 95% of cases.

It really has been or is a black swan event.

…but… does it really matter? For the stock markets and personal investment decisions?

  • Well, maybe it just doesn’t. Maybe it will prove to be insignificant for stock markets, beyond that short march dip and some more prolonged temporary loss of market capitalisation due to restrictions in tourism and entertainment.

  • Weird as it sounds, it might even, bolster markets and stock prices and the larger economy over the mid-term. By policies driving out smaller companies and and competitors out of markets, therefore increasing market power for large corporations, which make up most of the stock markets. Or through fiscal/monetary government intervention and inflating asset prices.

  • On the other hand, there might be bubbles and/or credit crises lurking that are only going to become evident over the next months.

I don’t know what’s going to happen. I honestly don’t have much of an idea what’s most probable or likely to occur.

…and that’s what you might jump at, say “aren’t we back to square one?” and counter:
If you don’t have an idea what’s going to happen, why don’t you go lump sum? It’s been statistically proven to have the best odds. True. But there’s some cautionary factors. If we trust historical statistical evidence (“lump sum is superior to DCA”), shouldn’t we also take other into account? Like historically high P/E valuations in many markets, and reversion to the mean?

In the end, while I don’t dispute your general assertion that lump sum investing is superior in most case, I do contend it’s not unreasonable to be cautious and choose DCA over a (limited) period of time.

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