Lump Sum Investing vs Dollar Cost Averaging

Which is better: Lump Sum Investing or Dollar Cost Averaging?

One of the most common questions I get asked is whether you should lump sum invest (LS) or dollar cost average (DCA) your money in the stock market.

What is the difference?

Lump Sum Investing: This is when you take all your immediate cash you have & invest it right away. You just received a $20,000 bonus at work? You invest all $20,000 right away. You just received $3,000 in cash? You invest all $3,000 right away. Did you know that if you invest every paycheck a set amount without having any extra cash set aside, in technicality you are lump sum investing?

Dollar Cost Averaging: This strategy is when you take the cash you have & rather than investing it all at once, you break it up into equal allotments over a specific period of time. For example, rather than investing the entire $20,000 bonus you received at work, you invested $2,000 every month for 10 months.

Slightly different ways of investing with both, but which is the better strategy?

According to studies & data, there is actually the most optimal strategy… that is to lump sum invest.

According to a study by Vanguard, using the MSCI world index returns from 1972-2022, lump sum investing outperformed dollar cost averaging after 1 year 68% of the time.

According to a study from Of Dollars and Data, they found that even on a risk adjusted basis, you are better off investing via lump sum than you are dollar cost averaging. Really the only time you are better off DCA (in terms of getting better returns) is when the market is on a down trend. The problem here is most people get emotional when the market is going down, freak out & end up not keeping investing.

So the data shows us that lump sum investing is best… what do I do?

For me, I lump sum. Every time I get a paycheck, the cash I have that is to be used for investing is getting invested immediately. Because the market, generally speaking, goes up over time, the most optimal time to get my money invested is now.

At the end of the day, whether you decide to LS or DCA, both strategies, over the long term, outperform cash that is not invested. So if your goal is long term growth in your money, keeping your money in cash is the least optimal choice.

Real quick, my podcast called The Decade Investor Podcast releases new episodes every week. This week I dropped three new episodes:

  1. Should You Invest Your Emergency Fund?

  2. How To Start Investing in the Stock Market (2024 Edition)

  3. Lump Sum or Dollar Cost Averaging | Which Is Better?

You can listen to them on any podcast playing app here:

The goal of my newsletter, my podcast, my social media is to help educate you on money & make sure you set yourself + your future generations up for success with money!

I want to help you too. I will be able to help you… soon. Stay tuned, I have something coming VERY SOON that will revolutionize the game for Decade Investors.

(x)Tweet of the Week:

My strategy is working. Brick by brick. I keep it simple. I make money, buy assets & keep doing it week after week.

Thank you so much for reading & I will see you next week! Until then, keep buying assets.🙂 

- Decade Investor

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