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Politics : Ask Michael Burke

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To: Simba who wrote (96816)	7/23/2002 12:37:49 PM
From: TimF	Read Replies (1) of 132070

SP500 is up about 80% from Jan 1994 until now (not including dividend), i.e if you invested $1 in 1994 it will be $1.80 now. That is about 8.5 years from 1994. You claim a compound annual 13% for 8.5 years. At that rate your total return comes close to 180%, i.e. if you invested $1 in 1994 it should be $2.8 now. Constant weekly DCA would produce a lower gross return then if you had invested all of the money in 1994, but it might produce a higher annualized return. Does your analysis account for these two facts. 1 - The average share cost less then the average price during the period your are using DCA because you buy more shares when the price is lower and less when it is higher. 2 - Since most of the money has not been invested for 8.5 years you can't use as the period you use to calculate investment returns. If I invested $1000 exactly 2 years ago and $1000 exactly one year ago, and my current balance was $3000 it would seem your method would say that my return is $50 gross over two years, or 25% a year. Actually the rate of return would be better then that. Half of the money would be invested for two years, half for one year. The average term would be 1.5 years not two years. Tim

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