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Some thoughts on “Dollar Cost Averaging”.

This is the result of my DCA experiment. My original plan was to buy one troy ounce of .999 Silver from my local coin shop every week.

Although I was unable to follow through with it I kept track of how I would fare if I had.

These are the standards I used throughout this two year project;
• All dates are Wednesdays because that is payday.
• My LCS charges $1.50 over spot plus sales tax (OH. 6.5%)
• Spot price quoted is NY. close (Bid) for that day. (Kitco charts show bid price)
• Spot on 1/18/2012 is $30.52

Date Spot Premium Tax Total
1/6/2010 $18.21 $1.50 $1.28 $ 20.99
1/13/2010 $18.64 $1.50 $1.31 $ 21.45
1/20/2010 $17.87 $1.50 $1.26 $ 20.63
1/27/2010 $16.59 $1.50 $1.18 $19.27
2/3/2010 $16.37 $1.50 $1.16 $ 19.03
2/10/2010 $15.61 $1.50 $1.11 $ 18.22
2/17/2010 $15.89 $1.50 $1.13 $ 18.52
2/24/2010 $15.97 $1.50 $1.14 $ 18.61
3/3/2010 $17.19 $1.50 $1.21 $ 19.90
3/10/2010 $17.03 $1.50 $1.20 $ 19.73
3/17/2010 $17.51 $1.50 $1.24 $ 20.25
3/24/2010 $16.56 $1.50 $1.17 $ 19.23
3/31/2010 $17.48 $1.50 $1.23 $ 20.21
4/7/2010 $18.13 $1.50 $1.28 $ 20.91
4/14/2010 $18.42 $1.50 $1.29 $ 21.21
4/21/2010 $18.07 $1.50 $1.27 $ 20.84
4/28/2010 $18.06 $1.50 $1.27 $ 20.83
5/5/2010 $17.50 $1.50 $1.24 $ 20.24
5/12/2010 $19.52 $1.50 $1.37 $ 22.39
5/19/2010 $17.63 $1.50 $1.24 $ 20.37
5/26/2010 $18.05 $1.50 $1.27 $ 20.82
6/2/2010 $18.34 $1.50 $1.29 $ 21.13
6/9/2010 $18.10 $1.50 $1.27 $ 20.87
6/16/2010 $18.47 $1.50 $1.30 $ 21.27
6/23/2010 $18.51 $1.50 $1.30 $ 21.31
6/30/2010 $18.62 $1.50 $1.31 $ 21.43
7/7/2010 $18.06 $1.50 $1.27 $ 20.83
7/14/2010 $18.28 $1.50 $1.29 $ 21.07
7/21/2010 $17.68 $1.50 $1.25 $ 20.43
7/28/2010 $17.47 $1.50 $1.23 $ 20.20
8/4/2010 $18.28 $1.50 $1.29 $ 21.07
8/11/2010 $17.88 $1.50 $1.26 $ 20.64
8/18/2010 $18.39 $1.50 $1.29 $ 21.18
8/25/2010 $18.94 $1.50 $1.33 $ 21.77
9/1/2010 $19.35 $1.50 $1.36 $ 22.21
9/8/2010 $19.90 $1.50 $1.39 $ 22.79
9/15/2010 $20.60 $1.50 $1.44 $ 23.54
9/22/2010 $21.13 $1.50 $1.47 $ 24.10
9/29/2010 $21.90 $1.50 $1.52 $ 24.92
10/6/2010 $23.19 $1.50 $1.60 $ 26.29
10/13/2010 $24.05 $1.50 $1.66 $ 27.21
10/20/2010 $23.93 $1.50 $1.65 $ 27.08
10/27/2010 $23.56 $1.50 $1.63 $ 26.69
11/3/2010 $24.84 $1.50 $1.71 $ 28.05
11/10/2010 $27.14 $1.50 $1.86 $ 30.50
11/17/2010 $25.65 $1.50 $1.76 $ 28.91
11/24/2010 $27.57 $1.50 $1.89 $ 30.96
12/1/2010 $28.42 $1.50 $1.94 $ 31.86
12/8/2010 $28.36 $1.50 $1.94 $ 31.80
12/15/2010 $28.79 $1.50 $1.97 $ 32.26
12/22/2010 $29.23 $1.50 $2.00 $ 32.73
12/29/2010 $30.60 $1.50 $2.09 $ 34.19
2010 Totals
Total. Cost $1,202.95
Avg. Tax $1.41
Avg. Cost $ 23.59
Total Oz. 51
Value 2/29/2010 $1,560.60



Date Spot Premium Tax Total
1/5/2011 $29.26 $1.50 $2.00 $32.76
1/12/2011 $29.65 $1.50 $2.02 $33.17
1/19/2011 $28.77 $1.50 $1.97 $32.24
1/26/2011 $27.61 $1.50 $1.89 $31.00
2/2/2011 $28.35 $1.50 $1.94 $31.79
2/9/2011 $30.20 $1.50 $2.06 $33.76
2/16/2011 $30.68 $1.50 $2.09 $34.27
2/23/2011 $33.54 $1.50 $2.28 $37.32
3/2/2011 $34.68 $1.50 $2.35 $38.53
3/9/2011 $36.13 $1.50 $2.45 $40.08
3/16/2011 $34.26 $1.50 $2.32 $38.08
3/23/2011 $37.42 $1.50 $2.53 $41.45
3/30/2011 $37.48 $1.50 $2.53 $41.51
4/6/2011 $39.51 $1.50 $2.67 $43.68
4/13/2011 $40.66 $1.50 $2.74 $44.90
4/20/2011 $45.23 $1.50 $3.04 $49.77
4/27/2011 $47.77 $1.50 $3.20 $52.47
5/4/2011 $39.39 $1.50 $2.66 $43.55
5/11/2011 $35.07 $1.50 $2.38 $38.95
5/18/2011 $35.02 $1.50 $2.37 $38.89
5/25/2011 $37.90 $1.50 $2.56 $41.96
6/1/2011 $36.82 $1.50 $2.49 $40.81
6/8/2011 $36.80 $1.50 $2.49 $40.79
6/15/2011 $35.81 $1.50 $2.43 $39.74
6/22/2011 $36.34 $1.50 $2.46 $40.30
6/29/2011 $34.88 $1.50 $2.36 $38.74
7/6/2011 $35.90 $1.50 $2.43 $39.83
7/13/2011 $38.23 $1.50 $2.58 $42.31
7/20/2011 $40.11 $1.50 $2.70 $44.31
7/27/2011 $40.24 $1.50 $2.71 $44.45
8/3/2011 $41.73 $1.50 $2.81 $46.04
8/10/2011 $39.29 $1.50 $2.65 $43.44
8/17/2011 $40.23 $1.50 $2.71 $44.44
8/24/2011 $39.69 $1.50 $2.68 $43.87
8/31/2011 $41.51 $1.50 $2.80 $45.81
9/7/2011 $41.55 $1.50 $2.80 $45.85
9/14/2011 $40.75 $1.50 $2.75 $45.00
9/21/2011 $39.62 $1.50 $2.67 $43.79
9/28/2011 $29.93 $1.50 $2.04 $33.47
10/5/2011 $30.51 $1.50 $2.08 $34.09
10/12/2011 $23.58 $1.50 $1.63 $26.71
10/19/2011 $31.23 $1.50 $2.13 $34.86
10/26/2011 $33.37 $1.50 $2.27 $37.14
11/2/2011 $34.27 $1.50 $2.33 $38.10
11/9/2011 $34.04 $1.50 $2.31 $37.85
11/16/2011 $33.70 $1.50 $2.29 $37.49
11/23/2011 $31.76 $1.50 $2.16 $35.42
11/30/2011 $32.83 $1.50 $2.23 $36.56
12/7/2011 $32.51 $1.50 $2.21 $36.22
12/14/2011 $28.96 $1.50 $1.98 $32.44
12/21/2011 $29.32 $1.50 $2.00 $32.82
12/28/2011 $27.15 $1.50 $1.86 $30.51
2011 Totals
Tot. Cost $2,033.34
Avg. Tax $2.39
Avg. Cost $39.87
Total Oz. 51
Value 12/28/2011 $1,384.65

Two Year Totals
Total Cost $3,236.29
Total Oz. 102
Avg. Cost $31.73
Avg. Tax $1.90
Value 1/18/2012 $3,113.04
Avg. over spot. $3.40

Sorry about this being so long, there is a lot of interesting data here.
It looks a lot better on my spreadsheet but I think you can get the jest of it.
Lets hear what you guys think.

If you want any other totals or averages, I can pull them up just let me know.

All the best...Bob.

Dang.... That is a lot of stops... Should have taken pictures and made a YouTube video of the time lapse ..

May I suggest sorting to lower that average... It will help.

I did not follow through with the plan, but I do stop at the LCS about once a week. It is only about 1/4 mi. from my house.

What I found interesting was the way the numbers worked out, that spike in early 2011 really kills the avg. I wanted to follow that plan, but I'm glad that I didn't.

The benefit in the end is that you would have 102 ounces stacked away in an affordable manor. Another item to keep in mind is when spot goes up $1 your stack gains $102.

I drew some conclusions about DCA in general, but I wanted to just put the facts out there first and see what others think.

Bob.

Two thoughts, not really conclusions:

a) If you draw conclusions on this at a point in time where the price is below the cost for more than half of the period evaluated, you are negatively biasing your conclusion. As a corollary, if you stopped your study in April 2011, you would tend to come to a different conclusion. Likewise, if you continued this and stopped in (say 2013) when the price is $100, you would have a different conclusion as well. Unless you are doing this over many years your statistical sample will be too small to give you a solid conclusion.

b) There is such a thing as smart averaging, where you emphasize the dips, and back off on the rises. That might yield yet another result. And it is closer to what I really do, versus buying exactly the same every week, no matter what the price.

I'd love to see a dollar cost averaging setup for group buys. Here's what I'm thinking:

Person A runs the group and collects the money. People B-Z each send in a preset amount once a month.

Person A makes bulk buys at certain intervals, possibly with an emphasis on buying the dips, and receives a percentage of the silver for his/her work. He then credits B-Z's accounts with their share of the silver for each buy, and ships the physical to each member once a quarter. Partial ounces left over after distributions could stay on that member's account for the next distribution.

Selling to the group would also provide a nice way for people to average their way back down.

What I see as dollar cost averaging is using the same amount of money each time and thus buying more when its cheap and buying less when its expensive

frugalcanuck wrote:What I see as dollar cost averaging is using the same amount of money each time and thus buying more when its cheap and buying less when its expensive

It's a bit hard to do exactly that even when you want to, since prices are a function of volume (fractionals more expensive) and silver is not infinitely divisable in its most desirable forms (coin, bar).

68Camaro wrote:

frugalcanuck wrote:It's a bit hard to do exactly that even when you want to, since prices are a function of volume (fractionals more expensive) and silver is not infinitely divisable in its most desirable forms (coin, bar).

That's where a system like I described above would help to smooth things out. As long as the members were willing to let their half ounces roll over to the next distribution, they could avoid the higher premiums on fractionals.

yep.. 68 has it correct. my first stack was as a teen back in 77. pulled 3 rolls of franklins at cost. Since I have a span over 30+ years much DCA is so low it's a joke. So I always tell those who are starting now.. It's about the ounces and not the dollars. I for one do not like the DCA schema. I pull as cheap as I can and my end result is security. After all, I could be blowing it on golf or bowling or something. Your have to spread your life around and not ignore the base of it for you and your family. Most of my 500, 600, 700+/- ounces of silver last year was at face and I can live with that.

work the system and you will come out ahead and even of it is at cost, you're ahead of most other people.

Maybe we can be called the 1% .. lol

68Camaro wrote:
b) There is such a thing as smart averaging, where you emphasize the dips, and back off on the rises. That might yield yet another result. And it is closer to what I really do, versus buying exactly the same every week, no matter what the price.

This is where I drifted from the plan. In the beginning I was getting one oz. per week, then I missed a few and since it was cheap ($17-$18)I would get two or three. Then work slowed down and I skipped several weeks, after that the price started running up and I stopped buying at $39, and sold some at $46.

I started buying again at $40 and doubled up at $33. The result for me is I have less Silver than I would have had, but what I do have cost a lot less. I also mixed in a lot of 90% rather than buying all .999.

As for the experiment, if I would have done it my 102 Ozs would be worth less now than I paid for it. However spot increased enough to cover most of the premiums and taxes that I would have paid. When spot goes back to $35+ I would have been way ahead.

I think a better variation of DCA would be to set aside $x every week and wait for buying opportunities like dips and Rays weekend sales.

Unless one of you has a crystal ball for sale (PM me).

Bob.

Thanks for posting this, very interesting info. I like your last idea of setting aside a certain amount each week to keep some powder dry for the dips.

I think your plan of buying one every week is the way to do it. Especially now, as the market seems to have floored. Consistency is key to investing/saving.

Also glad to hear that you keep a spreadsheet! It can be fun to crunch the numbers, even though it can drive you nuts and cause you to lose sight of the big picture when the prices drop. Anyone else do this? I created one where I can keep track of how the quantity of each coin I have stacked (war nickels, 90% dimes, quarters, halves, 40% halves, etc) and just enter the current spot and it calculates the value of everything. Sort of like an offline version of Coinflation. Took some time to set it up, but really saves me time in tracking the value of this nest egg as the market fluctuates.