Lump Sum vs Dollar-Cost Averaging
Should you invest a windfall all at once or spread it out? What the history and simulations show, and how to choose.
You receive $50,000. Invest it today, or feed it into the market over several months?
What simulations tend to show
Markets rise more often than they fall, so money invested sooner usually has more time to grow. Over many simulated futures the lump sum comes out ahead more often than not. Dollar-cost averaging (DCA) wins in the cases where the market falls soon after you invest.
Why people still choose DCA
DCA is a way to manage regret. If you worry that you would panic after an immediate drop, spreading entries over 6 to 12 months may help you stay invested. It costs some expected return.
Your regular paycheck is already DCA
If you invest monthly from income, you are averaging in by default, and there is no choice to make.
See it for yourself
The lump sum vs DCA calculator runs 2,000 simulated markets with your inputs. Then see long-term growth in the compound interest calculator.
This article is general education, not financial advice.