Buy & Hold vs Timing vs Dollar Cost Averaging


I’m a new customer happily using SPA3 Investor’s mechanical system to trade stocks for since the start of the financial year.

However, speaking with my millenial friends, not everybody is keen on the effort and learning involved in trading individual stocks with or without timing. So a lot of my conversations with friends who are interested in getting started with investing is around buying and holding ETFs. I am also hearing a bit about dollar cost averaging too, and was wondering if there was a way to compare the returns of buy & hold, timing, and dollar cost averaging for a single ETF (IJH) as was done in the critical concepts section of the education section.


Welcome aboard Benjamin.

Great to see you taking control of your investing decisions and looking to help others find a better way.

For Stage 1 investors (aged 18-55) a buy and hold approach using an Index ETF such as IJH is a great way to build a retirement portfolio, particularly if one is time poor or hasn’t yet developed the skill set to execute a mechanical, rules based approach.

Using a dividend re-investment plan with IJH is very easy and greatly assists the compounding effect. Adding contributions on top of this at semi-regular intervals also means that you’ll get the benefits of dollar cost averaging when the market is down.

It’s these larger down times that stage 2 and 3 investors are looking to avoid, but they provide an opportunity for stage 1 investors given that your investing horizon is many years ahead.

The use of dollar cost averaging will produce an even better return than a singular buy and hold approach. The regular contributions and re-investment of dividends in all market conditions will really snowball the portfolio’s growth over the longer term.

Then as you move into Stage 2 or earlier if you feel you’re ready, you can start to use timing to reduce the impact of a large bear market. You’ll also be well placed to start adding a stocks based satellite portfolio to further improve returns as you continue to add and re-invest dividends.

At this time the dividends will be collected as cash as opposed to being automatically re-invested via a dividend reinvestment plan.

There’s no easy way to run a comparison of dollar cost averaging against a buy and hold and timing approach, but suffice to say that it will handsomely outperform buy and hold.

We know that buy and hold will largely outperform the use of timing in a rising market, but we also know that it will wear the full brunt of any bear market and hence the need to introduce timing in later investing stages.

Keep up the good work.