The most important argument in favor of dollar cost averaging — the only one that matters, in my opinion — is that it reinforces scheduled saving. And since most people get paid on a regular schedule, that makes it convenient too.
Of course, most arguments for and against DCA devolve into specifics around things like strategies or allocations. The specifics typically come with examples that make two questionable assumptions.
The first involves assumptions based on past performance, as it relates to the future. Unfortunately, the future isn’t guaranteed to look anything like the past.
The second is that we’re all rational actors.
Conveniently, Ben Graham tackled this in a paper devoted to new (at the time i.e. 1962) saving plans dedicated to buying stock (pensions plans, CREF, variable annuities, and DCA via mutual fund companies): Continue Reading…