Hindsight is 20/20 and the power of dollar cost averaging
So, here's the deal. Last year (calendar year 2018) I made 5% in the market, mostly with VTI in vanguard. I figured after the GOP got their tax bill in late Nov of 2017, the market would react, and I moved a bunch of $$ into the market at that time.
It did work. Part of my strategy is don't be greedy. I only need 2% to make it in the long run, and I also have enough cash to come back from a market collapse. So, at then end of January / early Feb I had made 4%, and decided to start getting out via dollar cost averaging. But I saw what was happening and completely pulled out I think on Feb 4 or so. By Feb 4 I had made 3.25% (or so).
I sat out the rest of the year, getting money market rate (which was about 1.75%), so by the end of the year I was up about 5%.
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I'm a programmer (Perl is my language of choice), and started asking some what if's.
The VTI price peaked on Jan 26, and bottomed out on Feb 8. It took until August 17th for it to come back to the Jan 26 value.
So, I wondered, what if I had been sitting at a point on Jan 26, and started dollar cost averaging my way into the market over a period of 45 days, where would I have been by August 17th -- and pulled everything out on Aug 17 into money market.
I have factored in the additional days each installment would be invested in the money market.
It looks like this:
installment at day 0 (invested for 204 days) gains 0.21%, (1.05% with dividends)
installment at day 15 (invested for 189 days) gains 9.71%, (10.63% with dividends)
installment at day 30 (invested for 174 days) gains 4.62%, (5.50% with dividends)
installment at day 45 (invested for 159 days) gains 2.97%, (3.84% with dividends)
mean gain is 4.38%
mean gain with dividends is 5.26%
total days in money market is 136
annual gain is 8.28%
annual gain is 9.16% with dividends
So, last year, I could have made 9.16% instead of 5%, if I had dollar cost averaged my way back into the market instead of pulling out and holding. But it is hindsight, you can't beat yourself up too much over hindsight. Nonetheless, it is a lesson.
I find myself once again sitting here with everything in the money market, with a stock market that may already be somewhat depressed (or corrected if you prefer), and contemplating this lesson. Given the consumer confidence report, I'm thinking the market may drop some for a day because of that, but do the wild swing and recover in the next day or two, but the big if's are what happens regarding the government shutdown, and Mueller's report. I think Mueller's report is going to be a big "Oh sh*t" moment that will negatively impact the market.
Any thoughts?
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