Clearly what he said is invest as much as you can as soon as you can. This is certainly congruent with making a monthly contribution of from your paycheck. What you shouldn’t do is only invest a portion of that contribution.

If you want more proof that DCA is for suckers check the following academic articles.

- George M. Constantinides. “A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy.” Journal of Financial and Quantitative Analysis. XIV, June 1979, pp. 443–50.

- Kirt C. Butler and Dale L. Domian. “Risk, Diversification, and the Investment Horizon.” Journal of Portfolio Management. Spring 1991, pp. 41–47.

- Richard E. Williams and Peter W. Bacon. “Lump Sum Beats Dollar-Cost Averaging.” Journal of Financial Planning. Volume 6, Number 2, April 1993, pp. ?

Here’s a quick look at some things that caught my eye over the past week…
FMF has some tips for saving on kids clothes. With four boys running around the house, we need all the help we can get!
A guest blogger over at pfBlueprint wonders al…

1. %122 profit in 10 years is not that great. It is 8% return every year.

2. you can not compare the return of a Vanguard fund with the index, they are not the same thing. Due to investment costs, the performance of a broad index fund can never theoretically match the index it is trying to keep track of.

3. A fair comparision is to assume the dollar-cost-averager has also $12000 to invest at the beginning of the decade. She invested $100 every month into the S&P fund, and at the same time keep those amount yet to be invested in a safe and highly liquid investment vehicle, like a money market fund.

Granted, if the money market fund returns lower than 8% on average, she won’t be able to beat the index, but still, the performance gap won’t be that wide. More importantly, she gets higher liquidity of her asset over these ten years. Isn’t that worth anything?

I don’t believe it is on USA Today.

It is comparing dollar cost averaging of $100/month over 10 years against a lumpsum investment of $12000 at the beginning of the decade.

As JLP pointed out, these are two totally different games.

To make fair comparision, we need to discount the monthly investment made over the ten years to the beginning of the decade. That value is the real cost basis of the total investment, which will be significantly less than $12000. Therefore, the 31.3% profit ratio is wrong. It is way lower than the real profit ratio over these ten years.