Why do people cite YTD growth as a reference when most people DCA?

I often see people referencing year-to-date (YTD) growth when talking about investments, particularly for 401k growth. For example, people claim that if your 401k didn’t grow 25% last year (2024) like the S&P 500, then something must be wrong. Similarly, I see comments about how ‘the S&P 500 grew 80% in the last five years.’

But this assumes lump-sum investing at the beginning of the year, which isn’t how most people invest. Most of us dollar-cost average (DCA) into 401ks monthly, meaning the actual growth would be lower. So why do people keep citing the most optimal scenarios when they don’t reflect how the majority invests? I’ve been working for 4.5 years, maxing my 401k each year, and this has always puzzled me.

Most people DCA over many years, but the 24% growth referenced would only apply to the balance already in the account at the start of the year. Headlines and general comments oversimplify things for clarity, as they can’t address every possible investing pattern.

People cite YTD growth because it’s much simpler. It’s a way to generalize and get the point across without overcomplicating the discussion.

No one’s making a detailed chart every time they want to post about investment performance.

Look into the difference between time-weighted returns and dollar-weighted returns. Most metrics people use to evaluate 401k performance are based on time-weighted returns, which don’t account for the timing of contributions.

The impact of DCA contributions is usually small compared to the overall portfolio size. For example, if you start the year with $250k and contribute $1k monthly, your new contributions are a tiny fraction of the total.

For many people, the annual 401k contribution (e.g., $20k) makes up a small percentage of their total portfolio. It’s only a couple of percent for those with larger balances.

Not everyone DCA’s the same way. Some people get paid weekly, others biweekly, monthly, etc. Plus, 401k funds don’t settle at the same time for everyone. YTD growth is just an easy, universal metric to reference.

YTD growth works for most because they’ve been investing longer than a single year. The performance reflects the broader value change of their portfolio, not just the new contributions.

When I calculate returns, I use the modified Dietz method. It’s better suited for factoring in cash flows like DCA.

YTD growth reflects how much the value of the assets themselves changed, not an individual’s portfolio performance. It’s the most relevant way to talk about asset performance universally, without needing to know how much someone invested or when.

It’s a common oversimplification. Many people parrot DCA and ‘time in the market’ without running the math or understanding the risks of bad timing. During the dot-com bubble, DCA would’ve left you with two decades of underperformance.