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A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy

Published online by Cambridge University Press:  06 April 2009


The widespread notion that dollar-cost averaging can help an investor minimize the risk of investing all of one's capital in the market at an inappropriate time is aptly stated by Malkiel [4, p. 242]:

Periodic investments of equal dollar amounts in common stocks can substantially reduce (but not avoid) the risks of equity investment by insuring that the entire portfolio of stocks will not be purchased at temporarily inflated prices. The investor who makes equal dollar investments will buy fewer shares when prices are high and more shares when prices are low.

Research Article
Copyright © School of Business Administration, University of Washington 1979

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