The Problem With the Easy Strategy

The Problem With the Easy Strategy

June 19, 2024

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We don’t normally get topical but here’s some breaking news:

The market doesn’t always go up.

And this is bad news for our easy strategy using Dollar Cost Averaging (DCA) on ETFs.

In our example since 2020, our initial $1,000 turned into $33,000–mostly due to the fact that we put in $100 a week for all that time (about $21,000).

As it turns out, though, the period we talked about was an excellent time to do such a strategy. It’s why financial YouTube is filled with geniuses since 2020.

What happens when the market turns sour? Will our DCA strategy hold up?

Let’s take a look.

We don’t have data on SCHD or SCHG that goes back very far, so we’re keeping it even simpler and putting all our money into SPY (somewhere index funders are cheering).

What would’ve happened if we tried our strategy from 2000-2003 during the Dot-Com Crash.

Here’s our strategy:

The Dollar Cost Averaging (DCA) SPY Strategy

  • Start with: $1,000.
  • Add automatically via automatic transfers: $100 per week (or $400 per month).
  • That’s it.

And here’s the Report from 2000-2003:

Well, we have more money than when we started.

But it’s all our own money!

We contributed about $21k and we ended up with about $21k. Is that okay with you? Is that a good strategy?

Now let’s look at 2006-2008. Here’s the Report:

Uh oh. Our “guaranteed” system just got pummeled.

We contributed $14,000 of our own money and now we only have $11,000 after three whole years of investing every month.

Is that an acceptable strategy?

Yes, it’s easy and yes it’s automated. And it seems to use sound principles.

But, again, we can end up with less money at the end of several years.

Yikes.

In our next Newsletter, we’ll try to solve this problem and look at the possible upside.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.