"I'm not understanding what you are trying to say. If you have no lump sump, the question doesn't arise. You can only invest a lump sum, and the question only arises, if you have a lump sum."I'm not understanding what you are trying to say. If you have no lump sump, the question doesn't arise. You can only invest a lump sum, and the question only arises, if you have a lump sum.Two comments
1) As you probably already know, for most people (myself included) DCA is not necessarily about spreading out a lump sum just to reduce perceived risk. There was a Dave Ramsey speech about this where he basically says he doesn't DCA because its a great strategy, hes just doing it because thats when he has the money to make his next "lump sum"(after a paycheck). So I DCA every month or so because thats as soon as I can buy in.1. "Committing to this with 5-10% funny money", i.e. an isolated bucket in dollars for a leveraged strategy, is irrationally known subpar. It is hard to argue for or against knowingly irrational decisions, where the risk-adjusted final outcome distribution is not the optimization target, but something else which I'm unable to identify.I might also wager it be beneficial that for people committing to this with 5-10% funny money, it's worth putting 5-10% of newly invested dollars towards it when possible rather than buy once and then try to build a parachute on the way down.
If you rebalance in and out of this bucket, you are fine, but then why not rather define your global asset allocation including this bucket; the performance of your bucket would then also not reflect a 3x strategy.
2. Even if you did some sort of isolated bucket in dollars for a leveraged strategy, then time in the market is that much more important for a leveraged strategy. I bet it would reduce risk, not increase it.If you started in ca. 1964 then you are probably in the lowest percentile of outcomes until the 1980ies.
2) I agree with you that time in market is king in the majority of cases. For the standard S&P it seems one could put a lump sum down at almost any point and do alright after 10-15 years. (case in point: Bob the worlds worst market timer) but with 3x leverage and this strategy the game changes because yes at a certain point you may match/beat the market again, but that could take literally 50 years. (look at the 1955-2018 backtest) I recognize that the test was with 40/60 so if there is a 55/45 example from then that doesn't underperform for 50 years I'll happily cede my ground. I'd just personally like to be alive to enjoy my lottery![:D]( "Very Happy")
https://i.imgur.com/9D8QjKf.png
And so what. Either you invest in a strategy with this expected return and risk, or you don't. If you do, then the longer the time in the market the better. If you think dropping parts of an available lump sum money over time is beneficial compared to dropping the lump sum once available, then show me how you would have fared dropping into the strategy between 1955 and 1964, then being fully invested in it until 1982.
From a 1955 perspective with lump sum, tell me what motivates you to put more of your money at risk between 1964 and 1982 than between 1955 and 1964. Perhaps do some reading on the lifecycle investment strategy and principles. The case of a lump sum with no further additions is a special case, but I think the principle that more time in the market reduces risk applies to both.
I have bad news for you: If you don't like the tail risk, then deleverage. Also, if you are too old, then at some point it's "game over" for starting highly leveraged strategies. I'm not sure why it's not called "lifetime" but rather "lifecycle" investing which kind of suggests that you have more than one "cycle" at your disposal; not everybody believes in reincarnation.
The majority of new comments in this thread seem to be by folks who like the returns, but not the risk of HFEA and variants. Lol. And futile if not detrimental attempts at tweaking it. It becomes repetitive.
-I'm simply saying that to have the best outcome or likelihood of reaping the benefits of this strategy, perpetual contribution seems superior to a one-time bet and then no more. Thats all.
"If you started in ca. 1964 then you are probably in the lowest percentile of outcomes until the 1980ies."
-Incorrect if you are looking at a greater than 10-year time horizon, which is probably most of us. Starting in '64 you'd catch up to the market 30-40 years later. Starting in '55 you'd only think you were doing fine until 10 years later when you revert back below for the aformentioned period.
Yes 64 or so is when the lines diverge, but you'd catch up to the market more quickly than a 55 start date.
"Perhaps do some reading on the lifecycle investment strategy and principles. The case of a lump sum with no further additions is a special case, but I think the principle that more time in the market reduces risk applies to both."
-Interesting that you mention this because in the book titled "Lifecycle Investing" the authors seem to argue for diversification across time.
"If Andrew were to invest 5k in yr1, 10k in yr2, and 15k in yr3, he would have invested 30k dollar years. Andrew is much better diversified against temporal fluctuations in the stock market when he invests the total dollar years more evenly across time, here 10k in each of three years. You should think of every year of your life as a distinct investment opportunity. People make the mistake of putting 80% of their stock investments in just ten years. You are better off spreading your stock investments across several decades. Chapter 1
"The majority of new comments in this thread seem to be by folks who like the returns, but not the risk of HFEA and variants. Lol. And futile if not detrimental attempts at tweaking it. It becomes repetitive."
If you had started in 60 or 64, you would have done better spreading out 100,000 over 10 years than as a lump sum. One can see this when superimposing the chart on itself but moving the HFEA entry line up to where it meets S&P. When there are cases where spreading out large sums proves superior, it's hard to not see that as protective when using a strategy like this...and sure maybe that mutes your overall return, but you could reduce risk of a ridiculous drawdown and still come out ahead of the market, sooner than had you done the lump sum.
Statistics: Posted by bond93 — Sun Jan 28, 2024 12:28 am — Replies 14270 — Views 1902403