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A Modification to straight DCA!

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lostcowboy Member Level  Saturday, 04/20/02 03:56:24 AM
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A Modification to straight DCA!
Some people believe that we are at the bottom of the Bear market, and that the best course of action is a straight DCA from here. This will only be true if the market goes straight up from here to your retirement date, when you sell all your stock. The odds are not good that this will happen, it is much more likely that there will be dips along the way. I feel that dips should be taken advantage of, In order to do that you need some extra cash. What, you have no extra cash, you put it all into the stock market each month, well you are not going to be able to buy much at the sell then.
Here is what I recommend you do, put only 75-80 Percent of your monthly investment into your mutual fund, and the rest into a money fund or short term bond fund. When you get your statement from your mutual fund, look for your average cost, and compare it to the current price of the mutual fund, if the current price is below the average cost, you are looking at a bargain. Now is the time to take extra money from the money fund and invest it in the mutual fund.
The next question is how much of the money fund to invest, all of it? what if the dip becomes a bear, here you are buying stocks at a 20 percent discount when you could of had them at a 50 percent discount. Try this take (average cost) divide it by (current mutual fund price) you the drop the one, we want only the fraction. Take the fraction and multiply that with your money fund, that is how much extra you should invest at that time. Next month do it again.




Come see me at Systematic Investing group #board-966 lets talk formula plans.
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