Lump Sum Investing vs Investing Over Time (dollar cost average) | Which is best?
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Published 2021-06-06
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Whether this is your first time investing or you've just received a significant lump sum that you want to invest, it can be a very daunting experience.
But once you've decided what you want to invest in you have two options:
1) Invest everything as a lump sum, all in one go
2) Phase the money into the market over a number of months, benefiting from dollar-cost averaging
The rational answer is simple, the stock market goes up more than it goes down, so therefore you have a better chance of capturing those returns the longer you are invested.
But it's very hard to just accept this as fact, especially when the stock market looks so high.
There is no single right answer, and the best option will depend on your prior investing experience and attitude to risk. But in this video, I will talk you through everything you need to know so that you can make the right decision for you.
Nick Maggiulliās Blog - ofdollarsanddata.com/
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All Comments (21)
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If you received a significant lump sum, let's say more than you'd typically save in an entire year, how would you feel about investing it? Would you invest it all at once or phase it in over time?
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I recently downsized my property and was faced with this very decision on what to do with the cash. Even though I knew from previous literature that lump sum was a better approach than phasing in, I went for phasing in mainly because I wanted to minimise the regret I would feel if the markets went down after investing . As it turns out I've made on some decisions and lost on others. The good news is that I haven't lost a nights sleep! Seeing this video first would have made my decision a lot easier to make. Keep up the great content!
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Great advice, thank you! Especially when you think that a lot of the peaks and dips in the price of shares are the result of buyers and sellers emotional response to price fluctuations, committing them to buy and sell when holding is usually the best option.
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Thanks James !, as usual very candid, useful and honest advice. Itās always a pleasure to watch your content .
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Great video. Another advantage of DCA is that it gives you time to learn and for your strategy to evolve as you pick up more data. It is not so āone and doneā as lump sum investingā¦
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So true...having recently invested a lump sum then seen the markets go down, it is reassuring to know that in most instances it is generally the better strategy. Having said that, it is more stressful and makes you question yourself more, so I can well understand why you might advise your clients to DCA instead. I am continuing to invest small sums on a monthly basis so can hopefully benefit from both strategies in the long run.
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Thank James for this video; I really like your focus on the aspects of behavourial finance rather then focussing on maximum returns!
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Great video as always, James, thank you. If I was handed a lump sum to invest, I would probably take a third way and split the money in two equal parts, investing one half straightaway and phasing in the other half in stages, thus benefitting from both scenarios.
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I will have my car loan paid out in a few weeks. I cut up and closed my credit card last week. I have an Emergency fund, and with my budget i have room to build that up. In my job i get lots of overtime. Every month i am going to buy into an ETF with the extra pay.
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Great rational advice thanks James, love the cool, calm, historical analysis of previous trends....
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Excellent points, James! It can emotionally get you if you go all in.
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This is a really useful video to me as I have been having this question and battling with myself in my mind for some time.... This video really provides me with an answer that i can live with and follow. Great thanks!!!!
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Thanks James, was planning to invest a lump sum in the next couple of years and hadn't thought of the emotional/stress aspect - food for thought!!!
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Nice video. After always hearing time in the market not timing the market (& reading various books etc) I made a lump sum investment in early Jan 2020. By mid March i was really beating myself up. From my own experience I will certainly drip feed in the future into final allocation position (to counter lump sum i went higher allocation to bonds than final position but still didn't cope physiologically well in declining market)
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Great vid!
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Great video James. Lots of data to back up the facts. I have similar conversations with clients myself and judge each one as they come.
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Thanks James. This was very helpful to our situation. We DCA with our monthly savings but have received payouts from inheritance or annual bonuses that we had debated the correct strategy. Since finding your channel and hearing you bang on about āif you think the stock market is going to go up for the long term it is time in the market that counts not when you enterā we had started investigating these bonus amounts as lump sums. It was reassuring to hear some more data in this videošš¼
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Great video and very well explained about dca and lump sum investing.
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Thanks James, this is very helpful and very well explained. Cheers, keep up the great work š I would be happy investing a lump sum, time in the market is more important than trying to time the market
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Very helpful. Thank you
