Well, if we’d know that, why would we invest during the ⅓ of months, because DCA being favorable means the markets go down…
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I guess you never know, though I guess DCA means you buy more when cheaper and less when more expensive.
If monotonically increasing, it loses out to lump sum. If monotonically decreasing, it beats lump sum.
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TL;DR: Invest, but pick the style that allows you to stay the course.
Goofy’s supporting theory around this: the Schrödinger paradoxon of investing.
Both of the following two things are in a superpositioned quantum states and are true at the same time. Only when measuring things you will find out which quantum state the system was in.
Thing 1: Lump sum works best (statistically historically):
Thing 2: Goofy is too much of a chicken (historically):
I had about 7 figures to deploy in early 2020. I knew I should lump sum invest it. I sat on it as I felt I didn’t yet know enough about investing despite already knowing that statement 1 from above is true.
Market crashed in March 2020. I at least brought myself to then deploying low six digits into VOO (Vanguard’s S&P 500 ETF).*
Can’t imagine how I would have slept if investing the 7 figures in January 2020 only to see it shrink by 30% a couple months later. Not for the faint of heart, especially if the lump sum is a life-changing amount.**
Be well and invest well!
* I deployed the remaining cash over the rest of 2020 or so.
I slept well, mostly.
** To your point it would have recovered to the price of Jan 2020 by July 2021, but what a painful year and a half!
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I guess statistically, over long enough time periods, the market goes up, so statistically, you’re more often in the “increasing” territory.
Personally, I feel that’s fine for “small lump sums” (aka DCA?), but for my peace of mind I wouldn’t be able to deploy a really large sum in one fell swoop.
I admire those who can.
Well, actually not really – those return profiles are just excel table exercise … show me what you will do if Switzerland changes the law today and at the end of September 2024 you’re paid out your entire pillar 2 and pillar 3a in cash.
Monday, September 30th 2024 it arrives at your broker account.
What happens on Tuesday October 1st 2024 to that cash?
Nice and interesting discussion, will switch from monthly to bi-anually (June and November, when the 13. salary will be paid out; split up for the mentioned months).
I wouldn’t be able to do it either. The odds aren’t overwhelmingly in favor of lump-summing; it’s not like it’s better 95% of the time.
If I had 200k to invest, I’d probably do something like 80k now, 40k in a month, and after that 20k four times a month apart. So I feel good either way: stocks went up? I invested nearly half in the beginning. Stocks went down? I spread out 60% of it over half a year.
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Natural form of investing is DCA because people need to earn before investing.
I think the reality is that in most cases “real” lump sums for experienced investors come from big ticket items like Employee Stock options sale , RE sale, Inheritance, Pension withdrawals etc. So its not like money was sitting in cash and suddenly 1 Million needs to be invested. In those case investors would try to focus on asset allocation rather than Lump sum vs DCA. Because you are moving from one asset to other.
However, for someone who is starting from a high cash position (because never invested directly or some other reason) should always do DCA to build confidence because high risk tolerance is only high on paper :).
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Historically I’ve been ultra light on cash - always investing as much as possible as fast as possible from salary, bonus, etc.
This changed when COVID hit. Stocks collapsed and around the same time my cash bonus paid out. I went all in (yes, trying to catch falling knives). It worked out great (after a few nervous months).
My take-away was that retaining cash to take advantage of extraordinary market opportunities is a good thing. Doesn’t mean the cash is sitting there being eaten up by inflation as I use it to enable cash covered Put option writing to generate extra income.
Well. In your example, the bonus payout created an opportunity to buy the Covid dip as it was the right time.
However let’s imagine a different scenario. Let’s say instead of Feb 2020 , it was March 2023 , let’s say 24 March 2023 was bonus payment day, VOO was 363 USD a share at that time
What would investor have done with the cash?
- invest on 24 March 2023
- Wait for the first dip which was about 5-8% which started around end of July and lasted till end of Oct 2023. Basically during all of this period price never went below 363 USD. Minimum was 379 USD.
- Or wait for the “extraordinary dip” which didn’t really occur yet and in meantime VOO is 517 USD and paid multiple rounds of dividends in meantime
If the investor didn’t invest on 24 March 2023, and waited for the great opportunity, the retained cash indeed lost value in the meantime. The challenge is what is defined as “extraordinary opportunity “ and what is timeline for this before the investment should be made
In my view, we should always try to evaluate the quality of our decisions and not the outcomes. Outcomes are determined by many other factors but the decision itself might not be the right one. A good outcome doesn’t always mean a good decision and a bad outcomes doesn’t always mean a bad decision.
P.S -: perhaps the “cash covered put” also created the same returns as VOO. And in that case perhaps the strategy makes sense. I just don’t know what cash covered put actually means. My understanding of equities is limited to stocks and ETFs 
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I’d be interested to know more about your tactic. My layman understanding is that by selling puts, you give other people the right to sell their stocks at an agreed upon price.
Wouldn’t the puts get triggered in case of sharp market decline, in which case your cash is no longer available to buy the dip (since it was used to buy stocks at more than their market price)? How deep in/out of the money are you aiming when writing your puts?
My puts tend to focus on high div yield stocks with low volatility and then I write puts 5-10% below the current share price. Now, low volatility obviously means lower premiums but I accept that (on top of the div yield). 80%+ of options wind up never being executed and my track record is in line with that so I’ve never had the issue of not having the cash to quickly shift into buying other stocks on a dip.
In the past I never had enough time to deal with writing calls and puts (I never purchase options) but now I do and in itself it’s generating enough to live off of. Add on dividend yield and it leaves me fairly unconcerned with market dips or stagnant markets.
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In this backtest the best market timing underperformed regular investing as the money became available:
(I thought I saw this on a more confidence inducing site than Reddit before but this is where Google got me)
Another backtest experiment with more similar results between good market timing and DCA:
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When I want to comfort myself, cognizant a 5+ year stagnant/bear market would grate on my sanity, I look at this:
Issue is, something like SSAC or VWRL is essentially Large Cap territory, with most of it being US Large Cap/Mag7.
Forgot to mention that I primarily try to deal with European-style options which substantially reduces the risk of being called out on a dip vs. American-style options.
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Where do you sell those European style options? And what underlyings do you use?
I recently got assigned two (US style options) shortly after the Yen Carry Trade blowup – I’m fine with the assignments but was surprised as the underlying still had more than a month and a half (CVS) and more than 3 months (PAX) till expiration.
I guess someone needed cash quickly …
Not sure I exactly follow your question. The trading platform I use shows all available options and clearly highlights which are E vs. A style. Many times I can choose either E or A for the same strike price / date but obviously with a difference in price (getting less of a premium for E-style).
Ah, apologies for the poorly phrased question.
What trading platform do you use? If it’s IBKR, apologies ahead as I’m fairly new to it.
Still interested in the underlyings you write the puts on.
I’m not using anything fancy: UBS
With underlyings, you mean which stocks?
Some examples: telcos and insurance companies where there’s not going to be huge swings, they pay a great dividend, and I wrote both covered calls (to expand my income) as well as cash-covered puts (as I’m happy to buy more stock at the right price but prefer to get a premium paid in advance). Also, I wrote cash-covered put options on a number of (volatile!) semiconductor stocks. Got very very substantial premiums on this and will be just fine if I have to take possession of the stocks at a low price as I’m in it for the long haul anyway.
I rarely nowadays buy stocks direct - much rather put some put options out there resulting in me getting to take possesion at a dip price and get a premium.
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Yep, by underlying I meant what (underlying) securities/stocks to sell options on.
I didn’t know UBS offered this type of option trading. I’m a little repelled by their fees, but maybe I should take a closer look at them as a broker for option trading.
I only sell cash secured puts (CSP) for companies I really want, but I’ve observed other folks who do both covered calls and CSPs for generating income, which sounds like what you are also pursuing.