Enhanced Dollar Cost Averaging

[lesbian5eva]

“The EDCA strategy invests a fixed additional amount after a down month, and reduces the investment by a fixed amount after an up month.”

Anyone do this?

I am starting to use this strategy in my taxable brokerage account that I contribute to each month. My version is to contribute $X if the market is flattish (between -1% to +2% MoM return of the S&P500), $(2/3)X if market is up 2+%, and $(4/3)X if market is down more than 1%

For my Roth IRA, I still invest lump sum at beginning of each year. What do y’all think?

Link to study in comments

 

[naiduindia]

@lesbian5eva Dollar Value Averaging is another alternative https://en.m.wikipedia.org/wiki/Value_averaging

 

[eclipse122778855]

@lesbian5eva Take the period from november until now.

Assume you will dca your paycheck when you receive it, let's say every 1st of the month.

Nov - dec increased by like 8%. (save 1/3)

dec to jan by like 4%. (save 1/3)

jan to feb by like 4%. (save 1/3)

feb to march by like 4%. (save 1/3)

I guess it works if it's flat and goes up/down every so often, but the general trend for the market tends to be increasing.

So if it increases for X months straight (April 2020 to Nov 2021 for example), then you'll find that you've saved up alot of money that's left invested.

Of course, month-month there'll be moments that it'll decrease where you can invest more, but it's more common to see months that increase. Besides, the price when the decrease happens is likely to be higher than the price a few months back.

Basically you'll lose out on potential profits from this. 3 months straight alone will mean 1 month of your money is uninvested, and might mean you pay more if you waited for a decrease.

However, might be viable if the market seems to be going downhill, because the general trend is down(and so investing less at infrequent up periods might be better).

 

[lesbian5eva]

Building a Better Mousetrap: Enhanced Dollar Cost Averaging Building a Better Mousetrap: Enhanced Dollar Cost Averaging

 

[alabamawriter84]

@lesbian5eva I came up with this thought before it was published (or I read somewhere). I didn't have the patience to track it and do it regularly, so I abandoned it. I did a simulation and the returns were about 2% more, but difficult to implement in practice.

 

[whoops]

@lesbian5eva Sell cash secured puts to buy more shares using the premium. Ultra enhanced !!!!

 

[nalex1066]

@lesbian5eva I think this is going to result in a worse cost basis more often than not. What if you have 2 up months and then one down month? You're putting in more thinking it's a better price, but your overall price is worse.