Here are some returns for dollar cost averaging vs buy (all in from the beginning) and hold for SP500 over two different market conditions. I check three different kinds of DCA: buy month close if month was down, buy month close if month was up, and buy all month closes. All were $1000 purchases of the SP500 index (w/o div), held to the end of the period.

First, the "flat" 2000-2010 period. The final totals were:

.             DN DCA         UP DCA        ALL DCA
.TOTAL    57215.72        75497.34        132713.06
.# BUYS        55             74              129
.P/L           1.04           1.02             1.03

(P/L is gain or loss for all invested capital; 1.0 = gain of zero) Buying after down had the best return of +4%, which was 2% more than buying after up and 1% more than buying every month. All forms of DCA were much better than B/H; had one invested all capital fully at the beginning of the period thru 11/10, the return was -13.7%.

Here is the same for the bull market 82-00:

.                  DN DCA           UP DCA          ALL DCA
.TOTAL       404718.14       627104.29      1031822.43
.# BUYS           75               139            214
.P/L              5.4            4.51           4.82

Obviously a lot better performance than the recent decade, with buying after down months beating both other systems. BUT B/H from the beginning kills them all: balance as of 2000 is 12.98X the initial investment.


If you could know whether your relevant holding period is up rather than flat/choppy, it is better to go all in from the start. If not (why not?), or if funds are available only incrementally over time, it is better to buy after down months.

Kim follows up:

Here is the DCA analysis for DJIA from 1928-1940 (another bad period):

.                DN DCA       UP DCA         ALL DCA

.TOTAL       70737.18      82558.73      153295.91

.# BUYS          62                83                145


.P/L             1.14             0.99               1.06


.B/H             0.44

While the DOW lost 56%, blind monthly DCA and after down DCA made money.


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