Lump sum vs. DCA

Investment Analysis Clubs Macro Economic Trends and Risks
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We had an interesting thread about Lump sum vs. DCA a while back. I wonder if anyone changed his mind. Today I found a video where they backtest five ways to invest based on a research paper by Charles Schwab:

All five are long term investors, no traders, and the backtest covers 20 years ending in 2020. Each investor receives $2,000 at the start of each year which they invest in specific ways

  1. Peter Perfect (best timer): invests the $2000 on the day of the year with the lowest closing price.

  2. Ashley Action (lump sum): invests the $2000 on the first trading day of the year.

  3. Matthew Monthly (DCA): splits the $2000 into 12 equal parts to invests on the first trading day of each month.

  4. Rosie Rotten (worst timer): invests the $2000 on the day of the year with the highest closing price.

  5. Larry Linger (cash): buys Treasury bills waiting for the best time to invest.

Results at 9:53. Spoiler alert, lump sum and DCA are almost identical.

Trick question: What’s wrong with this backtest?

Because the procedure is flawed (IMNSHO) I’m going to get the S&P 500 2000 - 2020 data from Yahoo and do a proper backtest. Too complicated for a spreadsheet so I need to write a bit of code.

You Shouldn’t Time The Market (Here’s Why)| Joseph Carlson Ep. 251

https://www.youtube.com/watch?v=pJQzqYOAgRg
The backtest: https://www.youtube.com/watch?v=pJQzqYOAgRg&t=408s
The results: https://www.youtube.com/watch?v=pJQzqYOAgRg&t=593s

The Captain

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You Shouldn’t Time The Market

There is no such thing as timing the markets.

There is such a thing is shopping for opportunities.