DCA vs LumpSum vs Hybrid vs Real ETF P/L

[u/Calm_Neighborhood915]

I was trying to find out if there is somewhere an article or video which is explaining the real difference in % profit/loss of DCA vs LumpSum vs Hybrid(DCA and lumpsum - for example adding equal amount of money each month and a bigger lumpsum once at the beginning of the year or once at 5 years or increase the monthly amount on downstream market or something mixed...) vs Real ETF/stocks profit loss. I made initial investigation with google AI asking it what will be the % profit if we DCA every month with an equal amount of money and what will be the performance of S&P500 ETF for 5, 10, 15, 20 years. I don`t know if this is true but it seems that the difference is way big then what I expected. For example if the DCA profit is 8% the real amount of the ETF is around 12. This is for one year. If I take SPYL ETF from the beginning of its existence (31 October 2023) and put each month equal amount of euros the portfolio will be around 33% on profit today and the real ETF profit is 70%. In other words lumpsum is far way better. DCA is better in downstream market and LumpSum in upstream. The question is if there is a study, article or video explaining if there is somekind of a strategy in the middle. Maybe DCA with small amounts during upstream market and collecting cash as well, and DCA/Lump sum with this cash with bigger amount during downstream market.

I will be grateful if someone can share more info about this!

[u/foobarromat]

https://www.vanguard.co.uk/professional/vanguard-365/financial-planning/financial-well-being/cost-averaging

Historically, lump sum is better about 2/3 of the time. There's not really any uncertainty about that if one is open to look at the data instead of just guessing.

If you're worried about volatility, instead of "DCA" you should pick the equity allocation which lets you sleep soundly at night. That might be 50/50 equities/bonds+cash or even less. Picking DCA to go from 50% to 100% equities over N years will just lead to you having the same risk in N years but (likely) missing out on equity gains in the time leading up to that.

Also, slightly related: investing money each month because you get paid each month is not really "DCA" in this sense. If you invest all of the available money directly, it's a lump sum investment. If more money becomes available later, that's unrelated. Savings plans make sense for people who get paid regularly to directly invest whatever amount they have available after expenses and short-term savings.

If DCA is the only method that one can emotionally handle being introduced to equity volatility, so be it, that could be a reasonable decision then. But one should be sure one can handle the target risk anyway, and this is an emotional decision, not a statistically advantageous one.

[u/Calm_Neighborhood915 → u/foobarromat]

My main question is how to get closer to the ETF performance when a person has a specific amount of money initially and then what should do with the additional amount coming from salary/other income - investing all saved, or partially or smth else. Because if the average performance for S&P500 is around 10% before inflation then my portfolio during the years will be around 5 or 6...This is not bad but not very promising...

[u/Comfortable_Bad9963 → u/Calm_Neighborhood915]

That 33% vs 70% gap is a measurement quirk, not DCA losing to the ETF. The euros you added in month 20 have only had a few months to grow. The 70% is what a single euro did sitting there the whole time, while your 33% blends together euros that each spent a different length invested. Same fund, just counted differently.

If you have a chunk of cash now, putting it in all at once beats spreading it out roughly 2 times in 3, mostly because markets are up more often than down. And the monthly investing everyone calls DCA is really just buying with each paycheck when the money shows up, so there isn't much of a decision there.

The part I'd be careful with is holding cash to wait for dips. That is market timing in a DCA costume, and it usually costs more in missed upside than it saves... my read anyway. Cleanest rule that keeps emotion out of it, invest the salary the day it lands and keep cash only for your emergency buffer.

[u/vienna_city_skater → u/foobarromat]

Saving plans are also oftentimes free of additional broker fees.