I've read about dollar cost averaging when buying stock in several sources and I think I understand it. Is there a reverse version of it? Some relatively simple method of selling that will tend to increase ones return?
Dollar costs averaging doesn't necessarily increase one's return. It hedges against risk at the possible expense of investment returns.
DCA is most commonly applied to mutual fund purchases.
According to
Here's a real-life example: child's college fund (not QTP or Coverdell) is invested 100% in mutual funds from age, say, 8 to 14. Beginning with high school, 25% cashed out every year into CD's at a bank so that by time college starts, 100% is in bank CD's.
This worked well for two kids, a third one ended up with a loss (negating previous gains) due to being in high school from 2000-2004.
Clearly you don't want tuition money fully invested in stock market right up to freshman year of college, but selling all stocks four years early seems too conservative, especially for expenses like college where other sources of funding are readily available.
-Mark Bole
Yes, I understand that selling x dollars of stock per month would hurt. The question I have is what methods might help.
Dollar cost averaging works because you naturally buy more stocks when the price is lower and fewer stocks when the prices is higher. I'm trying to think of a formula where you would naturally sell more stocks when the price is higher and sell fewer stocks when it is lower.
For example, if you had a ceiling of say $100,000 and each month sold enough stock to bring the value down to your ceiling, and lowered the ceiling by some set amount every month, then you would sell fewer stocks when the price is lower and more when the price is a little higher. I think this would work much like dollar cost averaging except for selling instead of purchasing. Wouldn't it?
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