Chapter 5 "Not Predicting" Effect
Chapter 5 "Not Predicting" Effect
I don't remember putting any thought on it
ItââÅ¡¬ÃƒÆ’¢Ã…¾¢s very difficult to make precise forecasts with DCA investing, and such forecasts are futile. IââÅ¡¬ÃƒÆ’¢Ã…¾¢ll explain next why forecasting with DCA investing is unnecessary.
The above shows the movements of two funds A and B which are vertically symmetrical to each other starting at $10. Fund A goes up to $18 after 7 years, then falls finishing at $15 after 10 years. On the other hand, B sinks to $2 at the 7-year mark, and then turns up finishing at $5 after 10 years. As mutual funds, A is clearly the better performer. But which one would prevail under a DCA investment? This one is easy, right? The answer is B. Although AââÅ¡¬ÃƒÆ’¢Ã…¾¢s final price is much higher, that fund didnââÅ¡¬ÃƒÆ’¢Ã…¾¢t allow the investor to purchase as many units. IââÅ¡¬ÃƒÆ’¢Ã…¾¢ve said over and over again in this booklet that a DCA investmentââÅ¡¬ÃƒÆ’¢Ã…¾¢s performance does not only depend on price. Those of you who have read the entire booklet up to this point will have understood this, but please think carefully for a moment. If I had shown you this graph at the very beginning before any explanation, you would have automatically picked Fund A, right?
In the world of investing, financial institutions are putting a great deal of effort into giving their products even a slightly high performance. However, the moment DCA investing is involved, the performance of the fund and the results of the investment become separate factors. In the world of DCA investing, success does not only come from the best performing funds. This is perhaps a bit ironic, but it's the truth. With DCA investing, winning or losing with respect to the market is meaningless. Rather, you simply ride the wave of price fluctuations like a surfer. A very energy-saving way of investing. No need to worry about picking just the right product. DCA investing has been well-known for many years, however, its features have never been clearly revealed.
