Is Dollar Cost Averaging Always Better ? Annual or Monthly Premium ?

[blueskyqtc]

Dear all,

As today, many people are expecting that the stock market is going down, or go to side ways soon.

It seems that Historically SP500 Annual Pto P has given the highest IUL return for last 20 years.

For IUL funding, some people say that
Go to SP500 annual point to point at 100%, But with systematic monthly premium allocation ( just like monthly premium payment ). So each new monthly premium will have different 12 months period for SP500 annual PtoP.
( so you will have more comparing starting and ending points ).
They say that this is the best and (also less risk to get 0% return ) because of dollar cost averaging.

Some other people says that this is Not good, because client actually lose lots of investment time ( premium only go to investment monthly ), comparing to those clients who pay premium and invest annually at the beginning of each year.

Is dollar cost averaging always better ? Annual or Monthly premium payment is better ?

 

[EAJoe]

It's not always better to use DCA. The very first starting point and ending point could very well have better returns than any of the other starting points over the next 12 months. Conversely, the first start/end point could have a negative return, yielding 0% credited interest for that period.

Unfortunately, none of us have a crystal ball telling us where an index is going to be 12 months from now. DCA is a great way to mitigate the risk of "putting all your eggs in one basket" and getting zero returns for your entire premium. The downside is that you may miss out on higher potential gains.

The benefit of DCA over monthly premiums is that your expenses/fees associated with premium payments are generally lower, so you get the benefits of monthly premiums without the added expenses.

 

[Allen Trent]

The benefit of DCA over monthly premiums is that your expenses/fees associated with premium payments are generally lower, so you get the benefits of monthly premiums without the added expenses

Can you explain this more. How does DCA help with expenses? Whether my $12,000 check goes in as a lump sum or $1,000 per month, wont my load fees & policy issuance fees still be the same. Plus, with a level face policy, wouldn’t my COI deductions be slightly higher on DCA too.

PS—- I have always believed in DCA in all investing of lump sums & even more so in index life & annuity. Just a personal opinion, just always believed in it.

 

[hunschuld]

The Math says there is no real difference over a long period of time. The variable is the time period. Reality, monthly into an IUL means you will have less of a chance of a zero year on the entire premium. IE March 2019 to March 2020 = a big zero but monthly premiums started to show some gains by late May of 2020 so your monthly March and April had zero but your June monthly had a gain. Hope this makes sense.

 

[scagnt83]

Backtesting DCA on indexed products always shows higher returns in my experience. With the limiting of returns on an annual basis, eliminating zero years is a very positive thing for the account.

@Allen Trent he is referring to policy pricing of Monthly vs. Annual. Many carriers provide a slight discount if you pay annually, and DCA is considered an Annual Premium.

If ones goal is to have monthly contributions to the index accounts, DCA allows for monthly payments at the same cost of annual. It also provides a pretty competitive fixed interest rate on the funds, which boosts performance even more.

 

[Edwardfin]

Can you explain this more. How does DCA help with expenses? Whether my $12,000 check goes in as a lump sum or $1,000 per month, wont my load fees & policy issuance fees still be the same. Plus, with a level face policy, wouldn’t my COI deductions be slightly higher on DCA too.

PS—- I have always believed in DCA in all investing of lump sums & even more so in index life & annuity. Just a personal opinion, just always believed in it.

Hmm, I'm very curious as to the answer to this. I assumed there was a way to push down some of the fees because of how the policy was structured. Then again I definitely have seen companies have fees that will charge regardless.