This post is about dollar cost averaging (DCA) vs. the marvelous time spent in the market. You see time in the market and dollar cost averaging are two of the greatest strategies used to build wealth in the stock market.
Time in the market will beat dollar cost averaging any day. If you can do both that’s great, but if you can only chose one then buy and hold on for dear life. $1000 placed into the market with an 8% rate of return would accumulate $2158 vs. $1566 by DCA $100 a year over 10 years. $2000 placed into the market with an 8% rate of return would accumulate $9371vs. $4946 by DCA $100 a year over 20 years and $3000 placed into the market with an 8% rate of return would yield $30K vs. $12K by DCA $100 a year over 30 years. If you combined the strategies and did both DCA with the same initial lump sum investment you would end up with $4K, $14K and $42K at 10, 20 and 30 year intervals.
At 10 years it’s almost a toss up, but at 20 years time in the market really starts to pull away from the pack. Time in the market does the heavy lifting and DCA is the frosting on top and the younger you are, the more time you have. That’s why starting early is key. That’s why opening up a UTMA or a custodial account for children is important, especially if they understand this concept when they take control of the account at age 18 or 21. To be honest understanding the concept that time in the market is #1 when it comes to investing is way more important than opening up a custodial investment account in the first place.
Time moves the needle more than contributions and this can be seen in 5-10 year increments . Holding a position for 10 years on average is everything.