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Long term to me is more than ten minutes. I do not think I have a seventy
year time horizon for my portfolio. Now that we have derivatives for hedging
I wonder how the buy and hold might have fared?
The best crack I heard all week was: Those 401Ks are now 210Ks.
Michael
----- Original Message -----
From: "Dennis Holverstott" <dennis@xxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Saturday, April 15, 2000 10:25
Subject: [RT] Dollar Cost Averaging
| Preface - I'm not talking my book here. I don't own any stocks. I'm a
| short-term index futures trader. Long-term to me is a week and I never
| average down.
|
| All this talk about scale trading and averaging down, along with this
| week's crash, got me thinking about the way many people invest in the
| stock market - dollar cost averaging. Lots of people with 401K plans
| just contribute an equal amount every week or every month to a mutual
| fund.
|
| We all know what happened in the 1929 crash. The Dow hit its high in
| August 1929, crashed 90%, and didn't return to the 1929 high until 25
| years later in 1954. So I wondered what would have happened to our 401K
| investor if he had been unfortunate enough to open his account at the
| August 1929 peak and had the balls to stick with his equal weekly
| contributions over the years.
|
| The gif shows the results. I calculated the profit/loss by comparing the
| average cost paid for a Dow share to the weekly Dow close. Not a pretty
| picture but not as grim as the 25 year scenario might lead us to
| believe. I think it shows the value to a _very_ long-term investor of
| buying more shares when they are cheap and buying fewer when they are
| expensive.
|
| --
| Dennis
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