Buy and hold mantra exposed! Dollar cost averaging doesn't pay, as the author points out. From Cross Currents.
cross-currents.net
"At left below, you see a view that has only been seen in HD Brous & Co., Inc.'s Crosscurrents (January 22, 2002) and nowhere else. As always, we strive to present the most original and powerful research and commentary. The chart illustrates how dollar cost average investment in the S&P 500 has performed over the last five years and two months including dividends, a view that Wall Street has endeavored to keep you from seeing. Incredibly, an account utilizing everyone's favorite strategy was actually in the loss column after 58 months and yielded a paltry 1.7% compounded (monthly basis), even under performing the money markets over five years. After the full 62 months shown (through February '02), total profits came to only $162.28 on $31,000 invested! Although our comparision uses average money market yields of 3% going back to 1997, in reality, even cash at 1% turned out to be king! Given the better part of the mania for stocks, one would be excused for believing the results for stocks might have been a lot better.
The buy-and-hold mantra was and is clearly a myth perpetrated by ignorance.
As we see here, the money market investment comparison made 62 months ago at Dow 6448 has outperformed stocks by so much to date that Wall Street's insistence upon the long term mantra is truly laughable. After 62 months, the meager profits of $162 for Dollar cost Averaging (as of 2/27/02) prove that the common wisdom is worthless. Wall Street has pushed Dollar Cost Averaging for years as a sure fire method of acquiring wealth, citing the logic of buying more shares at low prices as a mathematically valid proposition. We agree in theory. However, in practice, the only methodology that works is reason. If prices are too high, stocks should be sold and not bought. The proof is in the pudding. |
