The downside of dollar cost averaging...

I wandered into a Barnes and Noble bookstore this weekend to pass the time while I was waiting for my wife. Of course, I gravitated to the investment / personal finance/ retirement section and started to browse. I came across a book by Ben Stein and became intrigued by a little section in the back called "25 Big Truths of Retirement Planning" Naturally, I started measuring my retirement efforts against the sacred list of 25. While I had most of the items covered, two of the items were interesting and warrant some discussion. The first I'll talk about here and the second I'll reserved for another post entirely.

Ok, so you probably guessed that he said something about dollar cost averaging, right? So what did old Ben say about DCAing? Well, since about 99% of us who employ some form of DCAing are basically trying to ease into a position and effectively trying to time the market to get the position at the best price. What most of us forget is that at some point -- even if we're long term investors -- that we'll eventually be selling some or all of the position.

So our friend Ben called to light the fact that in retirement, the benefits of dollar cost averaging are effectively neutralized because you need to sell your positions at specific times for living expenses. He doesn't go on to give perscriptive guidance, but he made the point and I think it's certainly valid to consider. This isn't to say that you shouldn't employ DCAing, but you will need to be smart about how and when you withdraw in retirement.