Finds DCA Strategy Lacking

BY DEAN KNEPPER

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
Managing Member
Lifetime Financial Planning LLC
Herndon, Virginia

SPONSORED REPORT

How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.

VIDEO

Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.

QUIZ

News quiz: Scam email plagues tax professionals—again

Even as the IRS reported on success in reducing tax return identity theft in the 2016 season, the Service also warned tax professionals about yet another email phishing scam. See how much you know about recent news with this short quiz.