Investment Analysis

Adaptive vs. Fixed Dollar-Cost Averaging: A Comparative Study of Passive Investment Strategies in the S&P 500 (2010–2025)

By Anthony Govoni

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Overview

This study investigates the performance of two passive investing strategies: Tiered Dollar-Cost Averaging (Tiered DCA) and Fixed Dollar-Cost Averaging (Fixed DCA). Both are applied to the S&P 500 index over the period from 2010 to mid-2025. Using real historical market data, we simulate and evaluate each strategy across key performance metrics, including capital deployed, share accumulation, and return on investment (ROI). While the Fixed DCA strategy demonstrates superior efficiency in terms of ROI, the Tiered DCA approach accumulates more total shares and ends with a higher final portfolio value. The findings highlight trade-offs between strategic complexity, capital flexibility, and investment efficiency.

1. Introduction

Passive investing, especially through Dollar-Cost Averaging (DCA), remains a popular approach for long-term investors aiming to mitigate volatility and remove timing risk. This study compares two DCA-based methodologies to evaluate whether responsiveness to market drawdowns can improve outcomes relative to a fixed allocation strategy. The analysis spans from January 2010 to June 2025 using historical data for the S&P 500 index.

2. Methodology

2.1 Strategy 1: Tiered Dollar-Cost Averaging

This adaptive approach mandates a minimum purchase of one share per month. Additional purchases (up to four extra shares) are triggered when the current price falls by 5%, 10%, or 15% from the trailing 52-week high. The strategy incorporates:

  • Market holiday and trading session checks
  • Dynamic trade evaluation based on 52-week price drop thresholds
  • Monthly purchase limits to manage risk and capital deployment
  • Automated trade execution via brokerage API integrations

2.2 Strategy 2: Fixed Dollar-Cost Averaging

This strategy executes a consistent purchase of two shares per month regardless of market conditions. It emphasizes simplicity, system security, and maintainability through:

  • Static trade logic independent of market fluctuations
  • Secure environment segregation (development, staging, production)
  • Cleaner serverless function design via dynamic configuration injection

3. Objectives

  • Assess how market-responsive buying affects capital efficiency and share accumulation
  • Determine whether adaptive DCA strategies offer improved long-term outcomes
  • Identify design trade-offs in automated investment logic and execution systems

4. Results

METRIC

Strategy 1: Tiered DCA

Strategy 2: Fixed DCA

Total Shares Accumulated

406

356

Total Capital Invested

$109,244

$94,347

Market Value (2025-06-30)

$230,588

$202,190

Total Gain

$121,344

$107,843

Return on Investment (ROI)

111.1%

114.3%

While Strategy 1 led to greater share accumulation and higher absolute portfolio value, Strategy 2 outperformed in terms of ROI, illustrating greater capital efficiency.

5. Discussion

5.1 Insights

  • Efficiency through Simplicity: Fixed DCA provided stronger ROI, reflecting the power of disciplined and predictable investing.
  • Capital Responsiveness: Tiered DCA capitalized on market drawdowns, accumulating more shares and generating higher nominal gains, though with reduced efficiency.
  • Optimization Potential: Strategy 1 could be enhanced by integrating momentum or trend-following filters (e.g., 200-day simple moving average) to avoid premature buying in sustained downtrends.

5.2 Practical Implications

For investors with capital flexibility and a willingness to engage in rule-based adaptive strategies, responsiveness to market drawdowns can lead to greater long-term gains. However, the added complexity must be weighed against operational costs and behavioral risks.

6. Conclusion

Both strategies offer viable paths for passive investors. While Fixed DCA excels in simplicity and capital efficiency, Tiered DCA presents an opportunity for higher nominal returns through dynamic capital deployment. The results suggest that strategic alignment with investor goals—whether maximizing ROI or total equity—should guide strategy selection.