USA Today financial columnists are not all they're cracked up to be
But when I see moronic drivel like this from a newspaper's paid financial "expert," it pisses me off.
USA Today's personal finance columnist John Waggoner says that dollar-cost averaging is not as good as we think because:
...if you had invested $100 a month in the Vanguard 500 Index fund for the past decade, you'd have had $15,437 in your account at the end of June, according to Lipper.In a word, wrong, Shit-For-Brains. Waggoner reveals that he doesn't understand one of the most basic concepts of finance, the time value of money. Waggoner's example is equivalent to going to your bank and saying "I'll deposit $100 every month for a year, but I want you to pay me interest as if I deposited the whole $1200 up front." It doesn't work that way, dumbass.
You'd have invested $12,000 in the fund, so your total profit would be $3,761, or 31.3%. Any gain is good, but 31.3% is a far smaller gain than 122% - the S&P index's return in the past decade.
In a word, bad timing.
Sure, investing a lump sum up front is better if you happen to have all of the cash up front and if you are certain the market will rise (and exceed the opportunity cost for the money). But that's the whole point of dollar-cost averaging: many people don't have all the cash up front, and not all markets always go up.
True, USA Today is a really crappy paper written for morons. But does it really have to be written by morons, too?