Re:It Feels Like the Game Is Rigged
by sooheon on Monday February 01, 2021 @02:39AM
(#25986473)
> I'd rather take a small hit to the expected value of my returns in order to reduce risk of being on the wrong side of that average.
This is a common fallacy. That is not actually the tradeoff you are making, in fact you are taking a hit to the mean value, and also greatly increasing the chances of being on the wrong side of the average[1]. Dollar cost averaging increases variance and decreases the expected return in proportion to your averaging period. You earn less and have a much lower floor for almost no increase in the ceiling.
Re:It Feels Like the Game Is Rigged
by nightski on Monday February 01, 2021 @12:29PM
(#25990817)
Good post thanks for sharing. It's true, the market grows more often than it shrinks and I could see how that skews the distribution in favor of lump sum.
This is a common fallacy. That is not actually the tradeoff you are making, in fact you are taking a hit to the mean value, and also greatly increasing the chances of being on the wrong side of the average[1]. Dollar cost averaging increases variance and decreases the expected return in proportion to your averaging period. You earn less and have a much lower floor for almost no increase in the ceiling.
There are nice visualizations here: https://ofdollarsanddata.com/lump-sum-investing/
[1] at least according to history. Who knows what the future holds.