Investing in SPY using dollar cost averaging, searching for ideas.

Discussion in 'Stocks' started by FreakofNature, Aug 13, 2011.

  1. I buy low and in panics, but within limitations.

    I like SPY as a good investment vehicle, can't go to zero and is more than well diversified. Im too young for bonds and too conservative to trust single companies.

    With that said, I would like to discuss the most efficient ways to invest in SPY using dollar cost averaging.

    Keeping it simple and using a capital of say, 250,000, for discussion sakes, would buying 1 ES every 100 points lower and rolling over on contract expiration be a better way than doing so in SPY due to less capital committed in the account ?

    The SPY ETF expense ratio is .09%, the best in the business, is this lower or hgher than rolling over contracts every expiration in ES?

    Would love to hear some ideas here as Im planning to buy 1-2 contracts every 100 levels down.

    The cheaper the better, all long term of course.

    Ideas very much appreciated as I got some excess capital I need to put to work and bank rates plus inflation are just killing me.
  2. yeah, I've often wondered the same thing. But back then you could get 6 1/2 percent on bonds without too much effort.

    Last I checked, 1 ES is worth about 60k, so with 250k that's only 4 buys if mkt stays the same or goes up. Otherwise, it's just the magic of margin.

    Same thing goes for gold. Never could understand why anyone would buy physical instead of just buying a futures contract.

    But when it comes to math I'm not that deep, so like you, I'd be interested to finally hear a good answer.
  3. tman


    I think that if you go the future route that you will have to mark to market for tax purposes at year end. With spy, you could manage your tax liability better.
  4. 60k at 1200
    55k at 1100
    50k at 1000
    45k at 900.... and so forth so more than 4 contracts with 250k capital and that's assuming no margin.

    I selected 250k as an arbitrary amount.

    Chances of ES dropping and staying below 400 are very small so down there the question of margin is very personal. I for one do not like to give losing a chance so I do not use margin, I just think, unconfirmed, that ES is a wiser derivative but still looking for definite answers.
  5. but lets see, .09% on 60k is $54, and you'd need to roll out 4 times at 5$ rt, plus $12.50 bid/ask spread on each trade, so that's $30 every four months so I think that makes about $120/60=.20%

    Might have missed it by 2 or so, so it should probably be .2 or .4
  6. Yes but then again you got working capital due to the leverage of the instrument (ES) and you could obtain a 1.5% rate off savings as you wait for new fills making up for the difference and more.
  7. so if you figure 5k margin on 1 es, that gives you 245K to do something with
  8. Yes and no, in the event of a nasty quick correction, you dont want your 1 ES liquidated but definitely capital to play with yes.
  9. hey FoN, I'm not trying to answer your question, I'm just asking the same question, but I would definitely keep it all in the same account to avoid the problem you described.
  10. We are on the same page yes :)

    Just thinking out loud here heh
    #10     Aug 13, 2011