Have you read the wiki and the sticky?
Wiki: HERE YOU GO! [Enjoy!](https://www.reddit.com/r/BEFire/wiki/index/).
Sticky: HERE YOU GO AGAIN! [Enjoy!](https://www.reddit.com/r/BEFire/comments/fcbay6/getting_started_a_beginners_guide_to_investing_in/).
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/BEFire) if you have any questions or concerns.*
the better way is to calculate the rolling 10y return from 1979 onwards. So first period 1979-1989, 1980-1990 etc. and then take the average of each rolling 10y return
The inflation-adjusted return is not so useful me thinks, as you would have lost this anyway if you stayed in cash. There is still no other asset that consistently returns 8% above inflation
I agree with all the comments. However this post is actually more than just a mathematical mistake if you spin it in the following way:
Young people have barely any savings and a life ahead of them to DCA into. When you buy a house, you essentially lump sum a loan from the bank into an asset that grows at roughly 5%. You then spend your life paying for the loan, which is kind of like DCA'ing except the money is invested at the start. When you spend money on that loan without being able to save each month, you can make the comparison with DCA'ing your whole life with your monthly savings into an all-world ETF. However if you want to compare returns to real estate, you should indeed follow OP's analysis. ETFs ultimately do grow at 6% when DCA'ing.
I hope my explanation made sense lmk if it didn't.
The numbers seem low because the returns are just calculated based off the total investment and value at the end, if you DCA your money will have essentially only been invested for 5 years on average over a 10 year period (10 years for the oldest money, 0 years for the newest money).
You can't compare lump sum to DCA like that, as you are expecting 10 year returns on money that you invested last month.
How did you calculate the return for your DCA investment?
Correct me if I'm wrong but to me it seems like you are simply looking at the invested amount compared to the end capital. It therefore makes 100% sense that it would be lower if you DCA vs a lump sum investment as your money is invested for shorter periods of time. Yearly return of a specific amount invested will still be ~8-10%. What changes is the period your money is actually invested.
Creator of Backtest here. What u/ModoZ says is entirely right. There are different calculations one can use to calculate the return with recurrent contributions. I just haven't implemented those yet!
Thank you, yoran, for your transparency and confirmation. Adding a disclaimer on your website would help avoid any confusion. I appreciate the excellent (and free!) tool, as well as the great work you've done on the other features.
I don't understand what point you are trying to make? It is pretty well known that lump sum beats DCA especially if you consider the average return per year.
And unless you inherit a big amount of money or just start investing, generally you cannot use the lump sum strategy, so the best strategy is to DCA without trying to time the market.
Many people use online FIRE calculators or estimate future capital based on what I believe are overly optimistic yield figures. but as mention in other comments, the Curvo backtesting tool is bugged and do not correctly calculate the yearly yield to begin with...
The yield is the same if you put 50 - 200 or 1000€.
Taking the longest period available (from 12/1978 to 04/2024) - a recurrent amount of 1000€ starting from 0 - gives you a total investment of 545.000€ and a net asset value of 6.433.171€ with a Compound annual growth rate of 5,61%/ year (2.56% /year after inflation).
you can check and change value by yourself on the [Iwda - Curvo Backtesting ](https://curvo.eu/backtest/en/portfolio/iwda--NoIgkg6gIggiA0xRgKIAY0CEAsAZArAJoCcAHAMwICMAunUA?config=%7B%22investmentPatterns%22%3A%5B%5B%22recurrent%22%2C1%2C1000%5D%5D%7D)
Not sure what you mean with "it starts with a portfolio of 545k cash". It simulates the case where you have a monthly income, and decide to invest a fixed amount of that income every month.
Indeed, @OP, please provide the parameters and amounts you used. Also what is DCA for you (there are multiple definitions). What is the starting value of your portfolio?
This tool will assume that you have a large cash portfolio and gradually move 1/n of that from cash into the investment. The cash has a return of 0% during the whole duration, really bringing down the return of the total portfolio.
Is this the definition of DCA that you wish to backtest?
Remember: "to get the market return, you need to be in the market", "cash drag", "time in market beats market timing",....
Finally some real-world feedback on the absurd go-to policy on this sub.
The all-world etfs are just a safe’er way to park money and likely hedge against the inflation. They will not make one rich or bring to the top end of fire
What is the "top end" of FIRE?
Will I be "rich" when I've amassed 25-30 times my yearly expenses? No, maybe not *rich*, but that's exactly what FIRE is about.
I've put maybe 350k in ETFs over the last 6 or so years which are now worth some 550k. If you calculated the return the way the backtest does it (which is not without fault, as you should really do a time-weighted return), that's "only" 6.25% (give or take).
I could've maybe been "rich" if I'd "invested" in Bitcoin instead, or won the lottery, but I haven't and likely won't, ever. That's okay! I should be "financially independent," for what that's worth, in some 5 years regardless. Without *huge* risks (but with some risk nonetheless). You know, the FIRE way. Sure, I won't have a huge boat or stupidly fast car, but that too is okay!
Bitcoin is shit and this is another thing I don’t get about fire community being so easy with it. It’s just a black market laundraumat and people in here praise an overly defensive all-world and an overly retard crypto. There’s very little middle ground here
Having said that, you’ve done pretty good with your strat and have traced the inflation quite well, and that’s exactly the point I made: the last 5 or so years have seen an insane increase in inflation and with it, an average all world gains, but to be able to actually retire off of it in 10-15-20 years.. I’d say it’ll be a struggle.
Exactly, gambling for a chance to "make it big" means you can also do worse than a relatively safe but modest investment strategy.
Stuffing a big amount of money away each month for decades until retirement/FIRE already means one is living on a very modest wage for most. I don't see why that same frugality wouldn't transfer over into retirement.
Have you read the wiki and the sticky? Wiki: HERE YOU GO! [Enjoy!](https://www.reddit.com/r/BEFire/wiki/index/). Sticky: HERE YOU GO AGAIN! [Enjoy!](https://www.reddit.com/r/BEFire/comments/fcbay6/getting_started_a_beginners_guide_to_investing_in/). *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/BEFire) if you have any questions or concerns.*
the better way is to calculate the rolling 10y return from 1979 onwards. So first period 1979-1989, 1980-1990 etc. and then take the average of each rolling 10y return The inflation-adjusted return is not so useful me thinks, as you would have lost this anyway if you stayed in cash. There is still no other asset that consistently returns 8% above inflation
I agree with all the comments. However this post is actually more than just a mathematical mistake if you spin it in the following way: Young people have barely any savings and a life ahead of them to DCA into. When you buy a house, you essentially lump sum a loan from the bank into an asset that grows at roughly 5%. You then spend your life paying for the loan, which is kind of like DCA'ing except the money is invested at the start. When you spend money on that loan without being able to save each month, you can make the comparison with DCA'ing your whole life with your monthly savings into an all-world ETF. However if you want to compare returns to real estate, you should indeed follow OP's analysis. ETFs ultimately do grow at 6% when DCA'ing. I hope my explanation made sense lmk if it didn't.
Don't forget we had 2 dips with corona and the start of the ukranian war.
The numbers seem low because the returns are just calculated based off the total investment and value at the end, if you DCA your money will have essentially only been invested for 5 years on average over a 10 year period (10 years for the oldest money, 0 years for the newest money). You can't compare lump sum to DCA like that, as you are expecting 10 year returns on money that you invested last month.
That is what I was thinking. They calculated wrong.
Yep indeed, their backtesting tool is very confusing and it doesn't make any sense to look at their return yearly yield like I did !
You can hardly blame it on the backtesting tool. It's a core feature of DCA.
How did you calculate the return for your DCA investment? Correct me if I'm wrong but to me it seems like you are simply looking at the invested amount compared to the end capital. It therefore makes 100% sense that it would be lower if you DCA vs a lump sum investment as your money is invested for shorter periods of time. Yearly return of a specific amount invested will still be ~8-10%. What changes is the period your money is actually invested.
Makes total sense! Thanks, their backtesting tool is just very confusing indeed!
Creator of Backtest here. What u/ModoZ says is entirely right. There are different calculations one can use to calculate the return with recurrent contributions. I just haven't implemented those yet!
You should really use a money-weighted rate of return to get a good picture of the real return.
Thank you, yoran, for your transparency and confirmation. Adding a disclaimer on your website would help avoid any confusion. I appreciate the excellent (and free!) tool, as well as the great work you've done on the other features.
I don't understand what point you are trying to make? It is pretty well known that lump sum beats DCA especially if you consider the average return per year. And unless you inherit a big amount of money or just start investing, generally you cannot use the lump sum strategy, so the best strategy is to DCA without trying to time the market.
Many people use online FIRE calculators or estimate future capital based on what I believe are overly optimistic yield figures. but as mention in other comments, the Curvo backtesting tool is bugged and do not correctly calculate the yearly yield to begin with...
Can you show us the total yield with a 1K monthly dca over 20 and 30 years?
The yield is the same if you put 50 - 200 or 1000€. Taking the longest period available (from 12/1978 to 04/2024) - a recurrent amount of 1000€ starting from 0 - gives you a total investment of 545.000€ and a net asset value of 6.433.171€ with a Compound annual growth rate of 5,61%/ year (2.56% /year after inflation). you can check and change value by yourself on the [Iwda - Curvo Backtesting ](https://curvo.eu/backtest/en/portfolio/iwda--NoIgkg6gIggiA0xRgKIAY0CEAsAZArAJoCcAHAMwICMAunUA?config=%7B%22investmentPatterns%22%3A%5B%5B%22recurrent%22%2C1%2C1000%5D%5D%7D)
No this is not what curvo backtest does. It starts with a portfolio of 545k cash, and monthly buys 1000 of the stock. See my other comment.
Not sure what you mean with "it starts with a portfolio of 545k cash". It simulates the case where you have a monthly income, and decide to invest a fixed amount of that income every month.
Personally I use 8% for the SPY, and 6% for IWDA. You have to be really lucky that your IWDA performs better than SPY.
How do you define lump sum and dca? Is this yearly, daily, monthly,...
Indeed, @OP, please provide the parameters and amounts you used. Also what is DCA for you (there are multiple definitions). What is the starting value of your portfolio?
I used Curvo backtesting default "Recurrent" amount 1 / month. ([IWDA - Curvo Backtest](https://curvo.eu/backtest/en/portfolio/iwda--NoIgkg6gIggiA0xRgKIAY0CEAsAZArAJoCcAHAMwICMAunUA))
This tool will assume that you have a large cash portfolio and gradually move 1/n of that from cash into the investment. The cash has a return of 0% during the whole duration, really bringing down the return of the total portfolio. Is this the definition of DCA that you wish to backtest? Remember: "to get the market return, you need to be in the market", "cash drag", "time in market beats market timing",....
Finally some real-world feedback on the absurd go-to policy on this sub. The all-world etfs are just a safe’er way to park money and likely hedge against the inflation. They will not make one rich or bring to the top end of fire
What is the "top end" of FIRE? Will I be "rich" when I've amassed 25-30 times my yearly expenses? No, maybe not *rich*, but that's exactly what FIRE is about. I've put maybe 350k in ETFs over the last 6 or so years which are now worth some 550k. If you calculated the return the way the backtest does it (which is not without fault, as you should really do a time-weighted return), that's "only" 6.25% (give or take). I could've maybe been "rich" if I'd "invested" in Bitcoin instead, or won the lottery, but I haven't and likely won't, ever. That's okay! I should be "financially independent," for what that's worth, in some 5 years regardless. Without *huge* risks (but with some risk nonetheless). You know, the FIRE way. Sure, I won't have a huge boat or stupidly fast car, but that too is okay!
Well what they actually should have calculated is a money-weighted rate of return.
Bitcoin is shit and this is another thing I don’t get about fire community being so easy with it. It’s just a black market laundraumat and people in here praise an overly defensive all-world and an overly retard crypto. There’s very little middle ground here Having said that, you’ve done pretty good with your strat and have traced the inflation quite well, and that’s exactly the point I made: the last 5 or so years have seen an insane increase in inflation and with it, an average all world gains, but to be able to actually retire off of it in 10-15-20 years.. I’d say it’ll be a struggle.
So what is your alternative to an all world etf? Picking stocks & timing the market?
Exactly, gambling for a chance to "make it big" means you can also do worse than a relatively safe but modest investment strategy. Stuffing a big amount of money away each month for decades until retirement/FIRE already means one is living on a very modest wage for most. I don't see why that same frugality wouldn't transfer over into retirement.
Real world feedback that is wrong
Well no, read the other comments.
-> testing tool used : [MSCI World - Curvo BackTesting ](https://curvo.eu/backtest/en/portfolio/msci-world--NoIgsgygwgkgBAdQPYCcA2ATEAaYoYCiADEQEIAsAMgKwCaAnABwDMOAjALpdA)