Question on dollar-cost averaging

I was reading a Fool article (my apologies, don’t have the link handy) that was discussing 401k’s during the downturn. It was mentioning different time frames…20 years, 10 years, to retirement, and how many times the S&P posted a loss during them.

My question is, generally speaking, and maybe someone has a link to a paper/article about it, when it is said the S&P (or any index/asset) has a loss over 10 years, does that mean starting at day zero and ending at 10 years, with dividends reinvested? Presumably, I can think of no other definition, so assuming that is it, can a person’s own return be positive based on averaging every week in the 401k? Or, is an index posting a loss mean that, even with averaging, most likely the personal return will also be negative? I’m just wondering what the exact effect is over a down period that presumably does not take into account averaging.

What I do with my 401k is, I don’t really re-balance (I based this on an answer in another board that made sense to me)…instead, I change the percentages that go into the funds, sometimes even on a weekly basis. I agree with the advice that it might be best to let what is working keep on working and just bring the balance in by adding more to an underperformer. I figure with dividends and capital gains and the like, that should help out. Right now I am favoring total-market over some of the sector funds (my real estate fund has been a really good performer over the last several years, and I’d like to keep all the shares on that after reading the previously mentioned advice).

Hi esxokm,

This is probably the article you read –…

Here is another –…

…when it is said the S&P (or any index/asset) has a loss over 10 years, does that mean starting at day zero and ending at 10 years, with dividends reinvested?..

You may see the S&P 500 listed two ways, one with the words “total return” appended. "Total return means with the dividends re-invested. The other is just capital appreciation.

When you are seeing 10-year return it is likely as if you made a lump sum investment on day one and looked at where you were 10 years later. Most of us add money regularly during our working years. So, for those folks, the “lost decade” doesn’t turn out to be lost.


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That’s one way to do it, esxokm, but for me, I treat my 401k (when I have one) just like any other long-term (3-5 years or longer) investment - I set my contribution percentages and let them do their thing. During a down market like this one, I am licking my lips because I know that my weekly (I get paid weekly) Roth 401k contributions are getting me more shares for the dollar than when the market was up. That means when the market recovers, I’ll be riding more shares up, and the value of my 401k will be greater for the experience.

Who in terms of fund diversification is also not letting the short-term bear market distract him from sticking with his long-term retirement strategy…

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