Dollar-Cost Averaging vs Lump Sum Investing

When you suddenly have a meaningful sum to invest, perhaps from a bonus, an inheritance, or a home sale, the question is whether to put it all in at once or spread it out over months. Vanguard research that looked at decades of market data found that lump-sum investing beat dollar-cost averaging about two-thirds of the time, because markets rise more often than they fall and time in the market matters.

However, the regret risk of going all in just before a crash is real and hard to stomach emotionally. A reasonable compromise is to invest the lump sum over three to six months on a fixed schedule regardless of headlines.

Dollar-cost averaging shines for ongoing contributions from a paycheck, where it is really just disciplined automatic investing rather than a market-timing strategy. The worst choice is sitting in cash waiting for the perfect entry that never arrives. Pick a plan, write it down, and execute it without second-guessing every move.