DCA vs. VA vs. Cash for Crash

THE THRIFT SAVINGS PLAN ALLOCATION GUIDE Forums Message Board DCA vs. VA vs. Cash for Crash

This topic contains 1 reply, has 2 voices, and was last updated by  TS Paul 5 years, 3 months ago.

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  • #12129

    Aitrus
    Participant

    Paul,

    I asked this question on another forum, and I’d like to get your take on it if you’ve got the time.

    For those who are buy-and-holding for long periods, which is a better value: Dollar Cost Averaging, Value Averaging, or building up a pile of cash in the G fund until a correction happens and then using those funds to buy additional shares at discount prices (let’s call it Cash for Crash for brevity’s sake)?

    In reading your post today, my initial thought is that Cash for Crash is a better deal because all your purchases are at a discount compared to prices that you would otherwise purchase at paycheck time. And since there’s 5 or 6 corrections a year (according to your post), it seems like Cash for Crash would be the best way to use paycheck allocations. It eliminates pointless buying at high prices just because the timing of your paycheck happens to fall on a peak, and there’s less computation than Value Averaging.

    Your thoughts?

    #12327

    TS Paul
    Keymaster

    When I am making investment decisions in my own accounts, if I am reasonably convinced that the fund or stock which I am buying is trending up I will not “average in” by buying at different times. Instead I put whatever funds I am investing to work right away.

    In contrast, if I am buying a stock or fund which is beaten up and possibly still falling, I will use the dollar-cost average strategy and invest fixed amounts over time. So at the tail end of a recession, for example, I might move a fixed percentage from the TSP F Fund to the TSP S Fund each week or month to hedge against the market moving lower.

    The only problem with waiting for a correction is one might not come along for several months and you could miss some significant gains during that time. In a situation where I feel that the market is poised for an imminent correction (such as earlier this year when we hadn’t seen one for a long time and the financial media was working the public into a frenzy), I might be inclined to wait until that happened. But with my luck, I would miss a 10% gain while waiting for a 5% decline.

    The TSP Allocation Guide www.TSPallocation.com

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