You’ve heard about dollar-cost averaging (DCA), also known as the constant dollar plan.
Now, let’s dive into enhanced dollar cost averaging (EDCA), a strategy that is capable of outperforming DCA 90% of the time.
What is EDCA?
Let’s break down what we mean by EDCA. Like DCA, you invest at predetermined intervals, for example monthly. In EDCA, you make larger investments following down months, and you make smaller investments after up months.
EDCA is a rule-based strategy that retains most of the attributes of traditional dollar-cost averaging (DCA) and improves on it.
This piece on EDCA is based on a research paper by economists Lee M. Dunham and Geoffrey C. Friesen in 2011. Dunham was the Assistant Professor of Finance at Creighton University and Friesen was the Associate Professor of Finance and University of Nebraska-Lincoln College of Business Administration.