I’m surprised that the article “ Investing After 50 ” included dollar-cost averaging (DCA) among the recommendations for CPAs who advise clients age 50 and over. Academic research over the past 20 years has shown that a DCA strategy does not necessarily result in superior returns even after adjusting for risk. The following is an excerpt from Dr. Moshe Milevsky’s book Wealth Logic: Wisdom for Improving Your Personal Finances:
“DCA is an inferior strategy. Alternate strategies result in greater expected wealth for the same level of risk or identical wealth for lower risk.
“Replacing one major investment decision with many smaller ones does not make the final outcome any safer. Therefore, if you have the money now and you have the choice, it is best to pick an asset allocation that you are comfortable with—and live with it. If you don’t have the money now, invest it as soon as it is available without using an averaging strategy.
“If you use DCA as a savings strategy, then you are essentially investing when you have the money, and forcing yourself to save, which is a good thing. The conscious decision to split your investments over time is the problem.
“Saving money on a regular basis is a wonderful idea, unfortunately investing it isn’t.”
Dean Knepper, CPA, CFP
Lifetime Financial Planning LLC