[HN Gopher] Show HN: Simulate dollar-cost averaging in any mix o...
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Show HN: Simulate dollar-cost averaging in any mix of stocks
Author : dwmcc
Score : 157 points
Date : 2022-09-06 13:00 UTC (10 hours ago)
(HTM) web link (simulator.tryshare.app)
(TXT) w3m dump (simulator.tryshare.app)
| sixQuarks wrote:
| How do you not have Tesla under the technology defaults? It's
| literally the most heavily traded stock in the entire market. SMH
| dwmcc wrote:
| Fixed. Good callout!
| sixQuarks wrote:
| Sorry, didn't mean to be snarky. There is a lot of Tesla hate
| in this forum and I thought maybe you were part of this bias.
| Cthulhu_ wrote:
| I'll bite; shouldn't Tesla be lumped with other car
| manufacturers instead? While tech is a big aspect of their
| cars, I wouldn't say tech is their primary product. And if
| electric vehicles and self-driving capability is the discerning
| factor, then other car manufacturers should be on there as
| well.
| Raidion wrote:
| It's weird. Tesla really just a car company but Tesla (as a
| stock) is priced like the market expects they solve (of some
| definition of "solve") the self driving car problem sooner
| than their competitors.
|
| Ford/Toyota/etc can almost certainly build better cars, but
| it doesn't have the technology focus, culture, or data to
| make it as big of a player in some hypothetical multi-
| trillion self driving car industry.
|
| Not saying Tesla doesn't have some advantages over incumbents
| in terms of battery supply chain, etc, but those are
| reasonably solvable problems given enough money and time. But
| it's hard to catch up to the amount of data/machine learning
| on that data Tesla has done.
| sixQuarks wrote:
| You haven't looked into Tesla enough if you think legacy
| car manufacturers can catch up to Tesla's manufacturing and
| battery lead. Chinese automakers have a chance, legacy US
| manufacturers no way
| sixQuarks wrote:
| Then Apple should be listed under phone manufacturers
| dragontamer wrote:
| Or just buy SPY or VTI and go braindead with it.
|
| Hard to beat dollar cost averaging the entire stock market, which
| is what VTI represents.
|
| --------
|
| Rebalancing is done between asset classes. But if you are going
| to rebalance, it's more efficient to buy target date funds.
| turndownsideup wrote:
| Hmm SPY weighting... 6.6% AAPL 6% MSFT 2.9% AMZN 3.9% GOOGL
| 1.8% TSLA
|
| Brain dead DCA + working in tech and getting RSU / ISO re-ups
| every year means you're just betting only on tech.
|
| Customization allows you to mitigate/ manage some sector risk
| if you want it.
| [deleted]
| nerdponx wrote:
| Are there any funds that specifically seek to spread exposure
| across multiple sectors of the economy?
| aketchum wrote:
| yeah, VTSAX or other total market index funds
| lotsofpulp wrote:
| There is not much difference in allocation (see portfolio
| tab):
|
| VTSAX - total US stock market mutual fund
| https://www.morningstar.com/funds/xnas/vtsax/portfolio
|
| SP500 - VOO
| https://www.morningstar.com/etfs/arcx/voo/portfolio
|
| Tech simply has a proven track record of raking in
| outsize profits, and I see no reason to bet against
| businesses with unmatched efficiencies of scale and
| enormous barriers to entry. Hell, even the king of
| investing, Warren Buffet, has been humbled by BRK only
| just keeping up with SP500 because of its huge 25%
| investment in Apple.
|
| You would have to go out to VT - total world market to
| see a difference in portfolio allocation.
|
| https://www.morningstar.com/etfs/arcx/vt/portfolio
| pramsey wrote:
| Good point! I guess the prudent FAANG engineer would buy a
| total market fund and then short a portion of their employer
| to net out the overexposure. Would sure feel odd though!
| roland35 wrote:
| Be sure to check your employer rules before doing this! It
| is probably against the rules to short or trade derivatives
| of your company stocks as an employee. At least at my
| employer this also applies to any fund containing >10% of
| our stock too.
|
| A safer approach would be to just purchase a fund which
| excludes tech. Personally I'm too lazy to do this and just
| have a total market fund :)
| Rebelgecko wrote:
| Another thing to keep in mind is that post-2018, a lot of
| tech companies got categorized as different sectors in
| the S&P 500. So you'd need an index fund that is ex-tech
| and/or ex-communications. I've looked around a bit and
| the fees for these types of funds seem much higher, so
| like you I just stick with the generic total market fund.
| hackernewds wrote:
| Shorting your place of employment is unethical, if not
| entirely illegal (IANAL)
| awesomedad wrote:
| He was talking about shorting a long, netting a zero
| position. In and of itself nothing wrong with that. Just
| make sure the positions move at the same time.
| jedberg wrote:
| Most companies prohibit any derivative trading on your
| company stock, even if you're shorting your own long or
| any other creative way you have of hedging against the
| stock going down.
| jamil7 wrote:
| You can still do that with individual stocks or sector ETFs
| (if you can stomach the expense) while holding a broader
| index as the core.
| francisofascii wrote:
| VTI is only the US stock market. VT might be better since it
| represents the world.
| dragontamer wrote:
| Fair. There's a question about "how big a basket you want".
|
| SPY (S&P 500, average of the top 500 companies in the USA) is
| fine. VTI is fine. VT is fine. They'll all fluctuate with
| each other since they're different baskets, but picking a
| broad-basket of stocks and diversifying is the most obvious
| good strategy for stock picking.
| 3pt14159 wrote:
| Is it hard to beat though?
|
| When I started just allocating money into tech stocks I, as a
| software guy, appreciated return went way, way, way up.
|
| Those Wall St quants can only appreciate M1 so far. They can't
| see the server farms 5 years out running linux on mac hardware.
| Or even if they can, they're paid to make decisions every day.
| "Boss, I'm just going to park it all on hedged and leveraged
| AAPL derivatives for the next half decade and sit on a beach."
| Isn't really going to fly.
| TrapLord_Rhodo wrote:
| Yes - Because we are talking over 20-50+ year timeframes
| (Well, some of the big firms are thinking in 200-400 yr
| timeframes like rothchilds.
|
| What if in 10 years the government decides that apple is too
| powerful? A new CEO comes in and destroys what has been
| built? A new competitor comes up with a product that is
| vastly supperior? A total stock market crash happens and your
| portfolio didn't have any bonds/ shorts/ hedges.
|
| You might be able to go into financial ruin and no one would
| blink an eye. If large, multigenerational funds go down its a
| very big deal indeed.
|
| that's why
|
| "Boss, I'm just going to park it all on hedged and leveraged
| AAPL derivatives for the next half decade and sit on a
| beach." Isn't really going to fly.
|
| isn't going to fly because the risk delta on that is very
| high indeed.
| jedberg wrote:
| > They can't see the server farms 5 years out running linux
| on mac hardware.
|
| They definitely can. I got paid quite good money to sit down
| with full time professional investors and tell them exactly
| that, and lots of other things. They don't go into these
| things blind.
|
| They pay good money to people like us to tell them what they
| need to know so they can see the future just a little better
| than everyone else.
| roflyear wrote:
| Plenty of managed funds have super long positions. Idk what
| point you're trying to make.
| dragontamer wrote:
| Wall Street literally values Apple / AAPL as the most
| valuable company in the world. So I literally don't know what
| you're talking about.
|
| VTI in any case is "the market average", because its
| literally the whole market. Its surprisingly a difficult
| strategy to beat, becaust most stock pickers perform below
| average (!!!).
|
| -------
|
| The only thing is that the stock market is very volatile. So
| it makes more sense to mix in bonds with regards to
| historical risk/reward. You lower your average gains, but
| often reduce your losses. (Long term bonds are doing poorly
| early this year, but with interest rates rising, I'd expect
| that moving forward bonds are going to do well)
|
| And that's where a "target lifepath" fund goes. Those funds
| mix "total stock market" with "total bond market" and call it
| a day.
| Bluecobra wrote:
| >They can't see the server farms 5 years out running linux on
| mac hardware.
|
| I am skeptical on this one. I don't see enterprise customers
| having a lot of confidence to buy into a new server line as
| Xserve only lasted ~9 years. They could have have continued
| to shlep that line along. I would think that Linux on ARM
| would be more likely than M1.
| justsocrateasin wrote:
| Sounds like you should quit your day job and become a trader
| full time. If the market is as easy to beat as you say.
|
| It also sounds like you've been lucky so far. There are many
| periods over just the last 30 years where the "sure thing"
| ended up bankrupting people. The hard part is beating the
| market over the course of your life.
|
| I would caution such reckless confidence. "The more you know,
| the more you realize you don't know." - if you are looking at
| a subject like quantitative analysis in stocks and thinking
| "this isn't so hard", you probably know so little that you
| think it's easy, but not enough to realize the intricacies of
| why it's hard.
| 3pt14159 wrote:
| I did learn lessons. I mistimed commodities and got burned.
| I mistimed the 2008 recession (thought it would be 2007)
| and the put options expired worthless (though still dodged
| the recession).
|
| But anytime I mention my gains on HN the crowd says the
| same two or three things:
|
| 1. You're just lucky.
|
| 2. Herp quit your job and work Wall St. (No. I'm not
| primarily money motivated and those people generally, um,
| are far from my cup of tea.)
|
| 3. You're just lying.
|
| They can keep saying that, they can keep down voting me.
| They didn't buy Tesla early or Bitcoin early or Shopify
| early, so nobody did that wasn't lucky. I'm not saying I'm
| some sort of finance prodigy, but it has been pretty easy
| to call tech stocks for the past ten or fifteen years and
| combine that with dodging recessions and an otherwise
| diversified portfolio and yearly returns after inflation of
| 15% are achievable, not even counting the Bitcoin payday.
| spywaregorilla wrote:
| If you feel you can easily achieve a return of 15%, why
| not make some leveraged investments? What do you mean by
| "easy"? 90% probability of achieving your goal?
| roflyear wrote:
| You are just lucky. You wouldn't say me winning the
| lottery is skill.
| samjmck wrote:
| > But anytime I mention my gains on HN the crowd says the
| same two or three things: 1. You're just lucky.
|
| Maybe because you are just lucky?
| jamil7 wrote:
| It's pretty hard to beat consistently over a long time, yes.
| gerad wrote:
| Somewhat shameless plug, but we're launching this week so now
| or never.
|
| If you want to see how a specific asset mix based on your goals
| performs (e.g. more in cash and BND and less in VT because you
| have a big home purchase coming up), check out our app at
| https://livefortunately.com/
|
| I'm traveling today so replies may be delayed.
| patch45 wrote:
| Intriguing! What do you mean when you say "We license the
| economic simulations trusted by hedge funds and insurance
| industry"?
| gerad wrote:
| We get our simulations from Conning [1], a 100 year old
| company that sells such simulations to these industries.
|
| We talk a bit more about it in our "white paper" blog post
| about what makes us different [2].
|
| 1: https://www.conning.com/-/media/marketingsite/documents/
| prod...
|
| 2: https://livefortunately.com/insights/what-makes-us-
| awesome
| lettergram wrote:
| > Hard to beat dollar cost averaging the entire stock market,
| which is what VTI represents.
|
| Unless you invested in 2021...
|
| The common "wisdom" of dollar cost averaging the market only
| works for those (1) who never sell (2) continue to have an ever
| inflating dollar and QE and (3) an ever growing economy
|
| Right now energy prices are 3x-5x a few years ago. That will
| dramatically reduce growth and may even shrink the economy.
| Arguably the real economy has been stagnant for quite some
| time.
|
| Not financial advice, but at the moment I would consider
| holding cash or other solid assets. Waiting for the energy
| situation to stabilize then buy in.
|
| You could cost average, but timing the market can produce
| multiples more gains if your calm / collected, informed and
| willing to wait.
|
| DCA reduces risks, particularly on the whole market. They said
| it doesn't remove risk and it definitely reduces potential
| upside.
| [deleted]
| nly wrote:
| Funny, because all the data and research shows the opposite.
|
| Read this:
|
| https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-
| co...
| Infernal wrote:
| The post you're replying to: > dollar cost averaging the
| market only works for those (1) who never sell
|
| The article you link to: > The only other rule in this game
| is that you cannot move in and out of stocks. Once you make
| a purchase, you hold those stocks until the end of the time
| period.
| kube-system wrote:
| > Hard to beat dollar cost averaging the entire stock market
|
| Easy! Dollar cost average a leverage fund that invests in the
| entire stock market. TQQQ beats SPY over the long term.
| itsoktocry wrote:
| > _invests in the entire stock market._
|
| TQQQ indexes the Nasdaq 100, not remotely close to "the
| entire stock market".
| kube-system wrote:
| True, and SPY is only S&P 500. But you get my point.
| M3L0NM4N wrote:
| I DCA TQQQ, but you have to know that in 2008, for example,
| had a 96% drawdown. The triple leverage can basically wipe
| out your entire equity, so you need a strong stomach.
| kube-system wrote:
| I just do it in my play money account. Casual day trading
| wastes too much time that I could otherwise waste on HN, so
| I risk my money with TQQQ instead.
| kareemsabri wrote:
| Sure, I mean you can DCA into SPY if that's what you like. Some
| people do want a bit more higher-risk or sector specific
| approaches.
|
| I personally have 50% going into SPY DCA then a bunch of other
| bets. Some of them have outperformed SPY, certainly in the bull
| market. We'll see how they do over 20 years though.
| dragontamer wrote:
| I have a bunch of other bets too, but its mostly play money.
|
| I've actually outperformed SPY with my personal bets, both
| over the last 10 years in general, as well as over the last 2
| years (including this bear market).
|
| But this is play money, not serious money. The bulk of my
| money is SPY/VTI + various Bond funds. I'm holding short
| duration and ultra-short duration and even Money Market for
| the near future, giving an eye to expectations from the Fed /
| interest rate hikes before jumping back into long term bonds.
| [deleted]
| b-lyons wrote:
| That's avery nice site and they seem to use Alpaca on the back-
| end, who seem to be doing good work.
|
| Many poeple seem to be saying they tried it the simulation out
| with broad ETFs, and that's a good use case.
|
| But I think many investors advise against DCA, because it results
| in you increasing expure to companies in trouble, going into bear
| markets or even bankruptcy. So for the riskier single stocks at
| least this seems to have a lot of survivorship bias.
|
| If we include some compaies that have done very poorly or gone
| bankrupt you would get a better picture of the effect of
| following this plan for individual stocks. You never know!
|
| It is true that investing all at once, rather than DCA, you also
| lose 100% in a bankruptcy, but "dollar cost averaging" seems to
| imply that buying at the lower prices (and thus bringing down
| your average price) is the benefit of the approach. In fact it is
| sometimes the main danger.
| lui8906 wrote:
| DCA has positives and negatives.
|
| Positive, you are averaging out the risk by spreading out your
| purchases and averaging into your position.
|
| Negative, time in the market beats timing the market, therefore
| you are better to have all your money you intend to invest in
| the market right away so you can enjoy appreciation, dividends
| etc
|
| If you have a large lump sum to invest it can be better to buy
| in one go or in a shorter period. However if you earn money
| over time and look to invest, it makes sense to DCA each month
| you receive your salary rather than waiting to time the market.
|
| NFA DYOR :)
| lotsofpulp wrote:
| If you earn money over time, you never had a lump sum to
| begin with, so of course it makes sense to "DCA" - it is your
| only option.
|
| It is still time in the market over timing the market, as
| long as the withdrawal date is far enough out into the
| future.
| hinkley wrote:
| If you're in your early 20's and reading along in this
| thread, I have some wisdom to drop on you:
|
| The real value of investing at a young age is not compound
| interest and having another 5-10 years of time with part of
| your money in the market. For most of us our earning
| potential will keep going up until at least our 40's, so the
| number of dollars you have later will swamp whatever you can
| save now.
|
| The real value of starting at 25, 24, 23 is that you only
| have a little money to invest, and when you lose it, it will
| subjectively hurt more. If you wait until 30 you'll be
| gambling a larger pile of cash without those hard won lessons
| to keep you out of trouble. The money you invest at the
| beginning increases the effectiveness of the much larger pile
| of money you can invest 5 years in.
|
| If you read enough personal finance articles, aimed at real
| humans, you will start to get a feel for the way in which
| finances, like dieting or time management, has a much larger
| psychological factor that the objective bean counters dismiss
| as if the math is all that matters. What matters most is
| _you_.
| bboylen wrote:
| 25 year old here and I definitely agree.
|
| I've lost some money on stupid investments (buying
| individual tech stocks last year, buying put options right
| as 2020 downturn hit its v shaped recovery)
|
| I'm just glad that the amount lost is in the low thousands,
| not tens of thousands.
| OscarCunningham wrote:
| > Positive, you are averaging out the risk by spreading out
| your purchases and averaging into your position.
|
| If you want to reduce risk it's better to lump-sum invest,
| but allocate a smaller proportion to stocks.
| GoldenMonkey wrote:
| AirBNB did poorly in the simulator. Losing 23% of it's value.
| kareemsabri wrote:
| I'm not sure I follow how the investing timeline relates to the
| exposure to companies "in trouble". Isn't that just about what
| you choose to invest in? If you pick a bad investment, or get
| unlucky, or anything else, you'll lose your money. DCA or not.
| zhdc1 wrote:
| Dollar cost averaging works when you have a steady stream of
| income that you're contributing to your investments and you
| have a heavily diversified portfolio.
|
| The reason being that, over a 5+ year investment horizon, a
| total US market portfolio will average about 6% after
| inflation.
|
| However, going off of empirics, dollar cost averaging is less
| preferable when you have a single lump sum. While it's possible
| that you 'time' the market wrong with your investment, the odds
| that you'll happen to invest immediately before a sharp down
| turn are lower than the odds that you'll miss out of rather
| significant gains by not being invested.
|
| This all assumes that you have a diversified portfolio. If
| you're trying to invest in single stocks, good luck.
| MuffinFlavored wrote:
| > The reason being that, over a 5+ year investment horizon, a
| total US market portfolio will average about 6% after
| inflation.
|
| I see a lot of talk lately how if the Federal Reserve needs
| to get the "Federal Funds Effective Rate" to a "not
| artificially 0-2% low" (like we've had for a while due to
| various forms of quantitative easing) that stock returns of
| typical "6% after inflation" with dividends reinvested aren't
| as likely.
|
| Any thoughts?
|
| https://fred.stlouisfed.org/series/FEDFUNDS
| [deleted]
| senko wrote:
| > dollar cost averaging is less preferable when you have a
| single lump sum
|
| This is mathematically true. Psychologically less so, and
| that's because of loss aversion.
|
| DCA helps you avoid the unfortunate case where the market
| tanks right after you've invested everything. In this
| situation, people can panic, pull out at considerable loss,
| etc.
|
| As a retail investor, the most challenging part of investing
| is psychology, and DCA can help in that regard.
| teraflop wrote:
| > The reason being that, over a 5+ year investment horizon, a
| total US market portfolio will average about 6% after
| inflation.
|
| Leaving aside the issue that past performance does not
| guarantee future performance:
|
| If you're talking about "averages" based on historical data,
| then the average annual return over a 5-year period is -- by
| definition -- the same as the average return per year. The
| investment horizon doesn't affect the average expected
| return, but it _does_ affect the dispersion of outcomes
| around that average.
|
| I think it's a bit irresponsible to say that a 5-year
| investment " _will_ average " 6%, when the standard deviation
| of that number is something like 8-10%. Seeing negative real
| returns over 5 year periods isn't just a theoretical
| possibility; it's historically fairly common.
| time_to_smile wrote:
| > a total US market portfolio *will* average about 6% after
| inflation.
|
| _has_ and _will_ are very different claims when applied to
| market behavior.
|
| Yes the US (and global) economy has been in an incredible
| period of overall growth for many decades. We've had
| particularly insane growth in the last few years. But I see
| no evidence that anyone in their right mind should expect
| that growth to continue indefinitely.
|
| People believe that bear markets are basically a season in
| the contemporary market place, but there is no reason that
| cannot be the long term trend. Across the board we're seeing
| resource and energy constraints.
|
| For every individual asset people are well aware that "past
| performance does not indicate future returns" but somehow
| when we consider the combination of all assets we forget all
| about that.
| rr888 wrote:
| As a non-American I can't believe how much faith people put
| in the stock market here. I think they're going to be a
| rude shock the next few decades.
| turndownsideup wrote:
| Lump sum broken up in increments is a very simple portfolio
| of cash and equities.
|
| There is opportunity cost of the cash (inflation is 9%
| currently). These don't compare the same as apple and
| oranges.
|
| Mathematically, as long as equity value is always accretive
| (due to passive flow from pensions) lump sum does win on a
| raw return basis. This doesn't take account of drawdown
| management. (Think 3AC)
| ASinclair wrote:
| > Dollar cost averaging works when you have a steady stream
| of income that you're contributing to your investments and
| you have a heavily diversified portfolio.
|
| To be pedantic (this is Hacker News after all), that is not
| Dollar cost averaging. That's lump sum investing at a regular
| interval.
|
| Dollar cost averaging assumes you start with a pot of money
| and you choose to invest fractions of that initial pot over
| time. This is opposed to lump sum investing in which you'd
| invest the full pot of money at the start.
| JustSomeNobody wrote:
| > Dollar cost averaging assumes you start with a pot of
| money and you choose to invest fractions of that initial
| pot over time. This is opposed to lump sum investing in
| which you'd invest the full pot of money at the start.
|
| How is this not the same as:
|
| > Dollar cost averaging works when you have a steady stream
| of income that you're contributing to your investments and
| you have a heavily diversified portfolio.
|
| My "pot of money" is my salary over the course of my career
| and my "investing fractions of that pot over time" is twice
| weekly contributions.
|
| Whether I start with the whole pot or not is of no
| consequence.
| mbesto wrote:
| > Whether I start with the whole pot or not is of no
| consequence.
|
| Do you get paid your salary a whole year in advance? No.
|
| Thus this distinction is important. As noted in the
| wikipedia article above the rationale for this has to do
| with "I have a big load of cash right now, do I just put
| all of it to work now or slowly over time?"
| kareemsabri wrote:
| It seems like a distinction without a difference. The
| investing outcome is identical, so why does it matter
| that your job pays you out over the entire year.
| JustSomeNobody wrote:
| So, I can't do DCA by depositing money 26 times per year
| and instead can only deposit it once per year?
|
| Let's say my career potential earnings are $1000.00US.
| Why can I not consider that my bucket of cash (even
| though I do not have it on my person all at once)?
|
| By depositing 26 times per year, am I not putting my
| money to work "slowly over time"?
| hinkley wrote:
| This is unfortunately not how DCA was explained to me. If
| you had extra money during the dot-com boom, you were
| probably taught that investing $400 a month in a fixed set
| of commodities was dollar cost averaging.
|
| It was almost ten years later that I encountered the notion
| of portfolio rebalancing specifically mentioned in the
| context of DCA. Luckily I already had a notion that this
| might be a good idea, but how you behave when you know
| something is good is a bit different from how you behave
| when you suspect it is. I was not being as disciplined
| about it as I should be.
| jannyfer wrote:
| Wikipedia says otherwise:
|
| https://en.m.wikipedia.org/wiki/Dollar_cost_averaging
|
| What you are describing seems to be the Systematic
| Implementation Plan.
| ASinclair wrote:
| I stand corrected.
|
| > Vanguard specifically discusses the confusion in their
| paper: "We refer to the gradual investment of a large sum
| as a systematic implementation plan or systematic
| investment plan. Industry practice is to refer to such
| strategies as dollar-cost averaging; however, this term
| is also commonly used to describe fixed-dollar
| investments made over time from current income as it
| becomes available. (A familiar example of this form of
| dollar-cost averaging is regular payroll deductions for
| investment in a workplace retirement plan.) By contrast,
| we are describing a situation in which a lump sum of cash
| is immediately available for investment."
| dom96 wrote:
| Investing every week? Don't most invest apps/providers only allow
| investment on a monthly basis? Might be better to simulate that
| cj wrote:
| I use Wealthfront and currently investing every Mon, Weds, and
| Fri, 3x weekly.
| kareemsabri wrote:
| No you can invest weekly in most apps.
| dwmcc wrote:
| The buy timing in the simulator matches up with the cadence in
| the app we're building - Share - which facilitates DCAing into
| strategies.
| bottlepalm wrote:
| Neat, would be nice to see the average annual return for the time
| period selected.
| throwaway290 wrote:
| Fun categories. Is Pelosi still long NVDA though? I heard they
| sold off shortly before the export ban but didn't verify.
| kache_ wrote:
| Dollar cost averaging is great psychologically
|
| But there's so much randomness in the system it doesn't really
| matter
|
| Just yeet your money dawg, stop thinking.
| lvl102 wrote:
| You should never DCA when it comes to investments. That's
| absolutely the wrong dimension to reference.
| amenghra wrote:
| Does it take dividends into account?
| notpushkin wrote:
| It's a nice playground. One thing I would do differently though
| is, allow selecting multiple "categories" of stocks, e. g. both
| Technology and Finance. Right now selecting one will de-select
| the other (but you can add more shares from other categories
| manually).
| kareemsabri wrote:
| That's good feedback, we can do that pretty easily.
| grubobeats wrote:
| I did a very similar tool like this for Cryptocurrencies, I can
| use this opportunity to shill it here https://www.dca-cc.com.
|
| For a while already, I procrastinated adding stocks to it,
| although people have asked for it
| https://github.com/vladanpaunovic/dca-crypto/issues/42.
|
| The tool you looks beautiful! Congratulations!
| kareemsabri wrote:
| Nice work. Shill away :)
| grubobeats wrote:
| Thanks! :)
| Bostonian wrote:
| Thanks for posting. I tried it with stock and bond ETFs SPY and
| IEF and got the result
|
| "If you had invested $20/week evenly in these assets for the past
| 5 years, you'd have invested $5,200.00 and have $5,638.09 today,
| a return of 1.1X."
|
| Usually that would be expressed as a return of 10%, and the
| return would be reported to the nearest percent. It would nice to
| allow the user to specify unequal weightings, say $15/week in SPY
| and $5 in IEF.
|
| A general problem with showing the results of a dollar-cost
| averaging investment plan is that it gives more weight to later
| returns in the period, since that is when the most money was
| invested. It's true that people who are starting from $0 and
| saving regularly from earnings face this risk. Another simulation
| that is worth showing is having the full amount invested from the
| beginning.
|
| I assume you are familiar with
| https://www.portfoliovisualizer.com/ , a comprehensive investment
| simulator (that is not a mobile app).
| dwmcc wrote:
| Hey, thanks for taking a look! The tool you linked looks quite
| comprehensive, but we wanted to build something simple and
| approachable for beginners.
|
| Good callout on custom-weighting, that's on the list to add in
| the future.
| Havoc wrote:
| The 1.1x is money on money convention
| ctchocula wrote:
| Agree with the first point. Either time-weighted return or IRR
| gives a more meaningful estimate of the return than simply
| dividing the final value with total amount invested ($5,200).
| intrasight wrote:
| I don't understand your "a general problem" statement. I would
| not consider it a problem to show correct results. Someone
| saving for retirement just wants to know the course-grained
| results. Having the chart split those results by the period
| that funds were invested would make for a very visually
| cluttered chart. But I agree that it would be interesting to
| some.
|
| A few years back, I created a simulator that let's you simulate
| both putting money in - lump sum and incrementally - and also
| take money out. I'll see if I can find a link to a live
| version.
| funnym0nk3y wrote:
| Has anyody done a thourough calculation with statistics and all?
|
| Just from intuition DCA would yield less than one lump if the
| expectation value is larger than 0. But then there is variance.
| If the asset is volatile enough that even a short period of DCA
| investing is bringing down the price a bit, I assume.
| zhdc1 wrote:
| > Has anyody done a thourough calculation with statistics and
| all?
|
| Yes. There's a lot of research comparing dollar cost averaging
| with lump sum investing. Lump sum investing in a diversified
| portfolio (total market ETF) almost always wins, even in
| periods where markets are 'overpriced' (e.g., high CAPE 10
| ratios).
| funnym0nk3y wrote:
| I have heard the same. But how could that be mathematically
| derived from a stochastic process? AFAIK the stock market is
| assumed to be a white gaussian process with mean larger than
| 0. How does the risk of bankrupcy and the variance of the
| portfoilio value at the end behave? How does it depend on the
| DCA period?
| jacobr1 wrote:
| Most mathematical analyses that I've seen involve running
| prior sequences of real-returns of various lengths though a
| monte-carlo simulation. So the distributions of prior
| returns is baked in (via a uniform sampling of historical
| timeframes).
|
| Here is a good example:
| https://www.portfoliovisualizer.com/monte-carlo-simulation
|
| Plenty of the white-papers from the big mutual fund firms
| give the impression they use very similar analysis methods.
| nly wrote:
| DCA gives you the best chance of getting mean/average returns,
| not the best returns.
|
| If the market goes up year and year then obviously lump sum
| investing is best, but it doesn't. It goes through periods of
| over and under performance and then returns the mean.
|
| In any case, it's academic for most us investing from our
| salaries. DCA isn't a choice.
| senko wrote:
| > Has anyody done a thourough calculation with statistics and
| all?
|
| Yes.
|
| Watch https://www.youtube.com/watch?v=X1qzuPRvsM0 and read the
| papers referenced in the video.
| kareemsabri wrote:
| The benefit of DCA (in my mind) is avoiding market timing risk.
| Sure, as another commenter pointed out, if a stock is only
| going up you better just get in and ride it up. But who knows?
| If you buy at the peak of a bubble, like in January 2022, it's
| not so great. If you're not studying the market all day, you
| can't really predict where it's gonna move (or even if you
| are).
|
| And of course, many of us don't have a big chunk of cash
| sitting around waiting to get invested.
| ricardobeat wrote:
| That's the spirit, but it doesn't work like that. You can't
| time the market without information.
|
| Most of the time, in the long term, investing a lump sum
| beats DCA even if you buy at a previous peak.
| saltcured wrote:
| I think people in the comments are assigning "DCA" to
| either (3) or (4) below, but having different assumptions
| about what the alternative might be...
|
| 1. Have a pile of cash to burn and invest it immediately,
| to maximize time in market
|
| 2. Have a pile of cash and sit on it to "time" a later lump
| sum entry to the market
|
| 3. Have a pile of cash and invest it incrementally for some
| ramped entry to the market
|
| 4. Have recurring income and invest it immediately as it
| becomes available
|
| 5. Have recurring income and save/buffer it up to revisit
| the alternatives (1)-(3)
|
| 6. Use credit to obtain a pile of cash ahead of income and
| revisit the alternatives (1)-(3)
| kareemsabri wrote:
| I consider DCA to be equal notional amount purchases of
| an asset at a fixed period (weekly, monthly, annually
| etc.). That's it really. Wherever the money comes from.
| shaftoe444 wrote:
| Really nicely presented app. Does it, or can it, include
| reinvesting dividends, which is surely the real secret of long
| term investing?
| dwmcc wrote:
| Thank you, really appreciate it! Yes, we are working on adding
| dividend reinvestment.
| shaftoe444 wrote:
| That would make it incredibly useful for me. The more I think
| about it the more I see how tricky it would be to gather
| accurate historic data about dividend payouts. Good luck with
| it!
| savrajsingh wrote:
| Can you add a comparison stat for "if you invested all at the
| start"
| bobbob1921 wrote:
| This would be great! (But I think it might go against the
| product that they are selling or plan to be selling on this
| app/site)
| pyrrhotech wrote:
| IMO it's easier and less work to outperform the indices with a
| combination of passively holding ETFs like VTI / VOO and
| strategic hedging based on quantitative leading indicators of
| economic trouble rather than trying to pick individual stocks.
| It's also more tax-efficient since you can continue to defer
| gains in the held ETFs while hedging with Section 1256 contract
| futures or options instead of constantly trading in and out of
| individual stocks and being hit with a lot of capital gains tax.
|
| My system is down -1.58% this year compared to -17.39% for the
| SPX for a nearly 16% outperformance margin. I've documented the
| results and information about it here:
| https://grizzlybulls.com/models/vix-ta-macro-mp-extreme
| thunky wrote:
| I'm skeptical:
|
| 1) Your performance chart starts right after the 2009 bear
| market and includes a huge bull market run up until the current
| slowdown where it then starts to match SPX. The straight line
| up until the drop starting in 2021 suggests that your model may
| not perform so well in the future.
|
| 2) You don't include the penalty from all the short term
| capital gains taxes you're generating.
|
| 3) If you can really generate those returns you wouldn't need
| to sell market timing signals.
| pyrrhotech wrote:
| Healthy skepticism is warranted! I've answered several of
| these in previous HN comments such as https://news.ycombinato
| r.com/threads?id=pyrrhotech&next=3012... and https://news.yco
| mbinator.com/threads?id=pyrrhotech&next=3012... but in brief:
|
| 1. Vix Futures are a huge part of all the VIX based models.
| Vix Futures came out in 2004 but the earliest intraday per-
| contract data publicly available is in 2009 which is needed
| to calculate the futures curve.
|
| 2. Slippage is included in the modeled returns but taxes are
| not, as mentioned in the tooltip. Taxes are not included
| because they vary widely by location, account type and
| implementation method. I've also written at large about how
| to minimize taxes on the blog. As a conservative estimate,
| feel free to multiply returns by 0.75x to get equivalent
| after-tax CAGR, but in most cases you'd beat this in real
| life.
|
| 3. Correct, and I make no guarantee that they will always be
| available. As of now, selling access to them in no way
| negatively impacts my own returns. I've met a lot of people
| in this journey and I enjoy leading a community and making an
| impact. I also make a significant amount of MRR that has
| grown substantially from the start of the year that gets
| reinvested into the models in my own account. I consider
| Grizzly Bulls to be a win-win alternative to the hedge fund
| industry for those interested in alternative investments.
| We've only ever had one Platinum member cancel, and given the
| model's underperformance in Q1 it was understandable. Since
| Q1, the model has been crushing the market, and it makes me
| happy to see our customers happy as well. Finally, as I
| mention several places, no one should ever expect any model
| to achieve 100% of its backtest performance, but there's
| enough leeway in the performance and drawdown figures to
| underperform the backtest and still generate substantial
| alpha, which has been my experience running them live for
| over 2 years now.
| thunky wrote:
| > Vix Futures came out in 2004 but the earliest intraday
| per-contract data publicly available is in 2009
|
| According to https://firstratedata.com/i/futures/VX, VIX
| intraday is available starting 5-Aug-2008. But your chart
| starts April 2009, which is the exact bottom of the bear
| market.
| pyrrhotech wrote:
| Right, but as it mentions there, "Continuous data is from
| 5-Aug-2008 , Individual contracts start with VXF09 (March
| 2009)". To calculate the Vix Futures curve, our models
| need the individual contract intraday breakdown not just
| the intraday data for the front-month contract. I'm sure
| this data exists somewhere but I haven't found anyone
| willing to sell it to me. If you do, please let me know!
|
| I can assure you that there's no conspiracy to start the
| models right at the start of the last bull market, and
| I'd be elated to get my hands on the data for this as
| well as a couple other indicators that don't stretch back
| as far. Though there is no guarantee, market volatility,
| bear markets and general downturns are actually the
| conditions that enable the models to outperform. During
| buy signals which can be quite lengthy in periods of low
| volatility during bull markets, the returns are exactly
| equivalent to buy & hold.
| bdkoepke wrote:
| PSA: Outside of stat arb and heavily leveraged market making
| with teams of PhDs, 60% annualized CAGR doesn't exist. In the
| real world, anything above 10% over the long-term (in-sample
| over 50 years), is extremely likely to be spurious and won't
| repeat.
| mouzogu wrote:
| nah, think i will just lump sum buy the market bottom
| xnx wrote:
| Dollar cost averaging is a psychological strategy, not a
| financial one.
| tunesmith wrote:
| Too many people think DCA means starting with a lump sum and
| then feeding it into the market over time. That's not DCA.
|
| Just look at it this way - any time you get a sum of money that
| you intend to invest in the market, invest that entire sum
| immediately.
|
| DCA just means you regularly/periodically get sums of money
| that you then invest immediately.
| bhelkey wrote:
| From bogleheads: '[Dollar Cost Averaging] is the technique of
| dividing an available investment lump sum into equal parts,
| and then periodically investing each part.'[1]
|
| [1] https://www.bogleheads.org/wiki/Dollar_cost_averaging
| tunesmith wrote:
| Yeah, I'm a big fan of bogleheads, but that definition is
| just wrong.
|
| There's a big difference between splitting an available sum
| into equal parts and then periodically investing, and
| periodically investing money as it becomes regularly
| available.
|
| Dollar Cost Averaging _technically_ refers to neither. It
| simply refers to regularly investing a set sum (like $1000)
| at periodic intervals, as the price goes up and down. It
| refers to the average cost being less than the average
| price. As price goes down, that sum buys more shares. As
| price goes up, that sum buys fewer shares. But it says
| _nothing_ about where the money comes from.
|
| People then try to _apply_ that definition in two different
| ways:
|
| 1) Using it to regularly invest a periodic income stream,
| like a portion of your paycheck. Note that in this case the
| lump sum (the yearly salary) is _not_ entirely available at
| the beginning. The money is invested as it arrives.
|
| 2) Using it to split apart an already-available lump sump
| into n equal parts, and then buying into the market n times
| at regular intervals. Note that in this case, a large
| portion of the lump sum _is_ entirely available at the
| beginning, and is _not_ invested as it arrives.
|
| Bogleheads is incorrect to phrase DCA as specifically
| dividing a lump sum into equal parts. It's not the common
| usage of DCA even on the Bogleheads forums or subreddits.
| And Bogleheads participants regularly chant that time in
| market is better than market timing. Splitting a lump sum
| over time is an example of market timing, since you are
| judging that later will be better than now. Bogleheads
| believe market timing is generally bad. They believe that
| definition #1 is generally good. They believe that
| definition #2 is generally bad.
|
| So that's where the terminology confusion comes in. People
| refer to #1 as DCA, and call DCA good, and then
| misunderstand and also say that #2 is good, when it's
| (generally) bad.
| hackernewds wrote:
| DCA has been shown demonstrably to outperform timing the
| market, at least as the optimal average choice
| Rebelgecko wrote:
| However DCA also underperforms investing a lump sum all at
| once (most of the time)
| tunesmith wrote:
| That's not DCA.
| caseyf wrote:
| this ^
|
| https://www.bogleheads.org/wiki/Dollar_cost_averaging
| MuffinFlavored wrote:
| Maybe make the amount + period configurable (aka not hardcoded to
| $20/week)
| dwmcc wrote:
| Noted - we're planning to add amount in the future. Regarding
| period, do you mean the cadence e.g. daily/weekly/monthly ?
| bobbob1921 wrote:
| Hi, great tool! And great interface/gui.
|
| Two suggestions if you don't mind:
|
| 1-add the ability to enable/disable dividend reinvestment (I
| assume it's enable by default/currently). 2-increase the
| timeframe options beyond five years.
|
| Thanks (I think you're on to an actual product here)
| dwmcc wrote:
| Appreciate the kind feedback. We also think we're on to a
| real product... which we're building! The app automatically
| DCAs into strategies (build your own or choose from
| existing templates) on a weekly basis.
|
| Noted - we're going to add dividend reinvestment, and the
| timeframe option is a good callout too.
| MuffinFlavored wrote:
| might as well add ability to compare compounded returns
| against inflation adjusted dollars too :D
| MuffinFlavored wrote:
| Think about who your average dollar cost average-er is.
|
| People still working/getting paid.
|
| How often are most paychecks?
|
| Weekly, bi-weekly, semi-monthly, etc.
|
| Maybe people with quarterly bonuses? Probably don't need to
| overdo it.
|
| What would be super cool (and 100% out of scope for this) is
| like...
|
| Buying only on "red" days (people trying to time the market
| thinking they'll buy the dip, but ignoring buying the market
| on the way up)
|
| This can help people visualize how important consistency is
| when it comes to investments (or it can hypothetically show
| the opposite results on how blindly randomly buying stocks
| with no logic behind it might not perform the best, etc.)
|
| Maybe there are strategies where technical indicators can act
| as a precursor for the decision making on whether or not you
| should buy or hold out?
|
| But yeah 100% not in the scope of what you and your team are
| working on. :D
| Otek wrote:
| Yeah, it should be quite easy to add on top of predefined
| periods (3m, 1y, etc) custom ones
| lordswork wrote:
| Tangentially related: Does anyone know of a similar tool for
| comparing DCA vs. lump sum investing over a given time period?
| zhdc1 wrote:
| You can use Portfolio Visualizer (portfoliovisualizer.com) for
| this.
| Raidion wrote:
| I mean, it's probably not as clean as you'd like, but it's a
| ~15 minute exercise in google sheets. Hint: Use the
| =GoogleFinance command.
|
| Lump Sum is just the rate of return from that date * initial
| investment. DCA is just that same lump sum equation but
| done/averaged out as many times as you've DCAed.
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