Crossposted from https://lemmy.ml/post/48918911
The irritating DCA thing is just a manipulation from bankers , stimulating the worst possible gamblers mistake - chasing losses. DCA claims it averages cost of participation, but that is a pure fallacy: these are independent events and probability of winning does not increasing with each “entry” even a cheaper one. What bankers are proposing to you is that you play again to cover previous losses. But the next play has the same probability to losing as the first one .
I already explained it - independent events - so you made a bet , it resolved as loss, if you “averaging” you basically hope to make another bet to cover losses. That’s it. The only reason you make second bet is that you falsely think that the win would be high enough to cover loss from previous bet. So you just make 2 bets thinking it will increase you chances to win and cover initial losses , but in reality you make 2 independent bets
Its a good idea to think of investing as an activity with a timeline in decades. If I buy a ten-year bond at 4% annual interest today, and a year later the same government is selling nine-year bonds at 5% interest, nobody will pay me the face value of my first bond. A year after that, maybe an eight-year bond is yielding 3%, and people will pay me more than face value for the first bond. I only know how much I made after inflation when ten years are up.
So the error there is that purchases are not actually independent. If say dot com stocks have been growing ten times as fast as the rest of the stock market, they can't do that forever (eventually they will become the whole stock market, then the whole economy). If a government keeps offering higher and higher real interest on bonds, eventually it will default or trigger high inflation. So the wise investor buys lots of different things, knowing that today's darling will be tomorrow's ugly sister. I recommend a good textbook.
If you don't believe me or don't get it, I don't have time to try to convince you, sorry.