Why this Simple and Yet Effective Improvement to Dollar Cost Averaging is Not Available to 401k's or IRA's is beyond Me!

TWINVEST  

Created by Robert Lichello in the 1970s.

Here’s how it works.

With TwinVest or Dollar Cost Averaging you decide your dollar amount based on your recurring time frame.  I'll use for our example once per month ($500) but you can do this on any saving schedule that suits you. 

SIMPLE ARITHMETIC (its not math, just arithmetic)

Your TWINVEST Code

1.  Multiply 0.75 times your investment amount (IA) then multiply by the share price (SP) of your stock.  For those of you who like formulas....  TWINVEST Code = 0.75 x IA x SP

Example: $500 per month to invest into Vanguard Total Stock Market Index (VTSAX).  0.75 x 500 x 50.68 = 19,005  You now have your TWINVEST Code.

2.  Divide your current share price into the TWINVEST Code this value will be the dollar amount to invest into your stock or mutual fund with the remainder going into a cash reserve (MMF or short term bonds, CD's etc.)  For you formula lover's.....  TWINVEST code / current share price = $ Invested in Stock

Continuing with our example. 19,005 / 50.68 = $375 to be invest into VTSAX the remaining $125 will be put into cash reserve.

Your TWINVEST Code (step 1) is locked in for the duration of investment activity, it is a static number no longer needed to be calculated.

The beauty of TWINVEST

The beauty of TWINVEST that from your starting point as markets rise you put less money into stock (or bond fund) or as the market drops you invest more and if it drops substantially you will use your reserve funds.  The only time you will have to re-compute your TWINVEST Code is when it only allows you to invest 25 or less dollars for you now have tripled your money.  Right off the bat you can see this is far superior to dollar cost averaging as your risk adjusted return will be higher (lower risk).  Why something so simple is not available to 401k's or IRA's is beyond me.

One side note:  For those using a mutual fund when they declare a capital gain you will have to add back in that per share amount to the current price to divide into your TWINVEST Code.

High volatility is TWINVEST's Friend.

DYI