Dollar Cost Avg - A Sirens' Song
Joe has decided to invest $100,000 from a maturing CD by buying a Vanguard total market index fund. Should he
a) Invest all in one chunk on the first day the money is available
b) Put the money in 20% per day for 5 days, thus averaging his purchase price over 5 different days.
My short answer is 'a', in fact it seems intuitively obvious. What impresses me is how many people who would be considered intelligent (MBA from a top-ten business school, PhD from a renowned science program) not only answer 'b', but have difficulty seeing how 'a' could possibly be correct.
In fact when a Vanguard advisor was asked this question he chose 'a', but gave a specious argument why, though it's possible that they are trained to give incorrect reasoning people would accept, rather than use a futile attempt involving logic and math which will end up confusing people. (Which is all I've been able to manage)