My $500 Dollar Cost Averaging Experiment

Brent Pittman —  03/07/2013
Science Experiment

I put Dollar cost averaging to the test with $500 on the line. Credit paladinsf.

I believe as a financial coach and financial writer I should eat my own pudding.

Following my article What is Dollar Cost Averaging: Drip Your Way to Millions, I decided to follow my own advice and devise a dollor cost averaging (DCA) experiment.

Remember the reason we dollar cost average is to spread out our investments since we don’t know what the market will do in the future.

*If you’re in the UK it’s called pound cost averaging. Fun fact eh?

The DCA Experiment Plan

I decided to invest $500 in a S&P 500 Index Fund for 5 consecutive weeks. I could have staggered it out for 5 months (1x per month), but I don’t like my money sitting on the sidelines for too long.

I invested $100 per week starting in February.

The Dollar Cost Averaging Experiment Results

The below is a summary of the 5 transactions.

S&P 500 screenshot


  • The average purchase share price was $139.36
  • The market did very well during this time period (near market highs).
  • If I had invested all $500 on 2.7.13 at a share price of $137.95, I would have been able to purchase 3.624 shares vs the 3.587 shares actually purchased–a difference of .037 shares.

Final Thoughts on my Dollar Cost Average Experiment

So in the end, my Dollar cost averaging experiment showed that a lump sum would have fared better in the end than DCA.

We don’t know the future and what the market will do from day to day.

My experiment could have easily gone in favor of Dollar cost averaging (Pound cost averaging), should the Sequester tanked the market, a bad jobs report, or Apple released another Apple Maps like debacle.

Does that prove that DCA is a bad idea? Will I abandon DCA in the future?

NO WAY! I will continue to engage in dollar cost averaging to smooth out my investments in the market. I’ll take a loss of .037 shares from time to time to hedge against the highs and lows of the stock market.

What are your thoughts about my Dollar cost averaging experiment? Do you have any conclusions I missed? 

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Brent Pittman

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Brent is a financial coach and writer looking for the perfect donut. He believes personal finance should be both fun and accessible to anyone willing to learn.
  • AvgJoeMoney

    It’s too early to know if it worked or not. Comparing results after a few weeks doesn’t show the true affect of DCA. As KrantCents said, it’s skewed because DCA stinks in an up market.

  • Was DCA invented because it’s good for the investor or because it’s good for the investment manager?

    I think DCA’s main affect is to help persuade otherwise reluctant stock investors to turn their money over to Wall Street, drip by drip, instead of all at once, which is a far lower psychological hurdle for the risk averse. As the two earlier commenters have pointed out, whether DCA is good for the investor depends on the unpredictable future of stock prices.

    • Interesting idea. Do you shy away from the stock market?

      • Brent, I wouldn’t say I shy away from the stock market. However, I think it’s prudent to consider carefully the recommendations of anyone who stands to profit if I accept their recommendations.
        With respect to DCA: If the stock market always goes up, eventually, as ‘professionals’ contend, then the sooner I invest my chunk of money, the better, right? By spreading my chunk over many small investments–i.e., by dollar cost averaging–I’d only be reducing my potential return. Said differently, the sooner I get into a winning proposition, the better. (Again, if the market always goes up, eventually.) Unless of course the market happens to be “overvalued” at the time I invest my chunk. Unfortunately, to my knowledge, no one on the planet has a demonstrated record of reliably predicting when stock prices are high, when they’re low, and what they’ll do tomorrow, next week, or over the next decade. You can randomly pick any point in time in stock market history (or watch CNBC for an hour) and find many so-called professionals arguing vigorously on either side of the current valuation question. So promoting DCA to “average down” one’s capital investment in case of falling prices is a sham. There’s an equal chance stock prices will go up, in which case DCA would produce a lower return than investing the entire chunk at one time. This in essence is why I’m persuaded that DCA’s genesis is as a stock marketing artifice–invented by those who profit when small investors buy, sell, and own stocks–not as an investment strategy that’s good for the small investor. If a DCA strategy turns out to be good (or bad) for a small investor, I think that’s merely a coincidence, a result of chance.

        • Kurt,
          Thanks for sharing your thoughts. I agree we can’t tell if the market will go up or down–which is precisely why DCA helps with averaging out those highs and lows.

          If dividends are in the mix, then buying sooner than later will also affect your returns.

          I’m not concerned with others becoming rich off my investments since I use low cost index mutual funds.

          I’m curious on how you advocate investing–if not doing it incrementally. Either lump sum or incremental are the only methods I am aware of.

          • Brent, I’m certainly not an investment advisor, so I can only say what I do for myself. Whether my approach would be appropriate for anyone else depends on a lot of factors.
            I zero-in on what I think is an appealing investment, for us. Depending on our asset allocation, the risk of the investment, and the ‘big picture’ of our financial situation, I decide with my wife on an appropriate amount to invest. Then I make the investment, all at once.

  • krantcents

    I have dollar cost averaged for years in good and bad times. Your experiment is skewed because it was increasing.

  • Emily @ evolvingPF

    I think the most important thing to point out is that you are comparing DCAing to lump sum investment at the beginning of the period. Had you lump-sum invested at the end or somewhere in the middle you would have come out with fewer shares because the market was increasing during the time. The opposite results would have been obtained if the market had decreased overall.

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