Improved Dollar Cost Averaging
dollar cost average (SACIN) purchases securities for a lower
Just as the performance of the SACOUT® method can be improved
by selecting a lower Ko, the performance of Dollar Cost Averaging
can be improved by a similar technique embodied in the SACIN®
(Securities Average Cost IN) method. Instead of investing a fixed
dollar amount per period, the SACIN® method uses a formula
to automatically purchase more shares than DCA when the price
is low and fewer when the price is high. Again the user inputs
A, the nominal dollar amount to be purchased per period
base price either today's price or what you think the average
price will be over the purchase period. When the price p equals
the base price Pb you will buy the nominal dollar amount, A.
Ki is a gain factor. Making Ki zero measures up from zero just
as dollar cost averaging does and will purchase A/p shares per
period as DCA does. Making Ki=0.5 (the default value) will produce
about twice the benefit (difference between average share price
over time and average cost per share) that DCA does. It does this
by measuring up from Pb/2 so that the variations in price look
The SACIN® method (patent #7,003,483) will purchase
a variable dollar amount per period. This is best handled both
for the SACIN® and
SACOUT® methods by using them to make cost free transfers between
a variable fund and a cash equivalent fund within your account.
This is now routinely done to gain the benefit of dollar cost averaging
when investing a lump sum. The first few periodic investments would
be put into the cash fund. Then, after a few periods, use the SACIN® method
to make transfers to a variable product such as a stock or growth
fund. Similarly, use the SACOUT® method to make periodic transfers
to a cash fund and then take periodic withdrawals from the cash
fund. You might want to stay ahead when making mandatory withdrawals
from an IRA to avoid avoid having to take a large withdrawal at
year-end to meet IRS requirements.
After using these techniques for a period of time, one will look
back and ask, did I really do better than other options? The answer
will probably be no. I could have done better if I had made a single
transaction on some date. This is hindsight and we all would be
rich if we could make trades in hindsight. The SACIN® and SACOUT® methods
are designed for those who want to do better than current practice
without becoming involved in market timing.
Sacco Company, Inc.
323 Bittersweet Circle
Williston, VT 05495
2007, Sacco Company, Inc. All Rights Reserved.
The technology underlying SACIN® and
protected under U.S. Patent #7,003,483.
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