Lump Sum vs Dollar-Cost Averaging
Compare investing a lump sum immediately against spreading it over a period, across rising, falling and flat markets.
Your numbers
How long dollar-cost averaging takes to get fully invested.
What the money earns while it waits its turn.
Markets rise more often than they fall, which is why lump sum usually wins.
Lump sum ahead after the period
$1,160
Investing $60,000 at once ends at $64,337. Spreading it over 12 months ends at $63,178.
- All at once
- $64,337
- Spread over 12 months
- $63,178
What this assumes
Uninvested cash earns the stated interest rate while it waits. No trading costs, and both approaches end fully invested.
What it does not tell you
Lump sum wins more often historically, because markets rise more often than they fall. That is not the same as it being right for you, since the two approaches differ in regret rather than only in expected value.
What the evidence actually says
Investing a lump sum immediately beats spreading it out most of the time, and the reason is unexciting: markets rise more often than they fall, so time in the market usually beats waiting. Studies across long histories and multiple countries land in the same place, typically finding lump sum ahead around two thirds of the time.
That is a statement about averages across many periods, not a prediction about your particular period. In the minority of cases where the market falls after you invest, spreading it out wins, and it can win by a lot.
How this calculator differs from most
Most comparisons quietly assume the uninvested cash earns nothing while it waits, which understates dollar-cost averaging. This calculator credits interest on the money still waiting to be invested, at a rate you set, which is closer to reality when cash pays anything at all.
It also invests the full amount in both cases, so the two approaches end fully invested and the comparison is like for like. The instalments rise slightly across the period, which is not a bug: the waiting cash earns interest, so there is marginally more to deploy later.
You can toggle between a rising, flat and falling market to see how the answer inverts.
The part the arithmetic cannot decide
The two approaches differ in regret as much as in expected value. Investing everything the day before a large fall is a specific, memorable kind of painful, and someone who then sells has turned a modest underperformance into a permanent loss.
If spreading it out is what lets you actually invest rather than leaving the money in cash indefinitely, the small expected cost is worth paying. The worst outcome in this comparison is not the lower of the two lines. It is never investing at all.
Common questions
- Which one is better?
- Lump sum has the higher expected value because markets rise more often than they fall. Dollar-cost averaging has the lower worst case. Which is better depends on whether you are optimising for expected outcome or for the chance of an outcome you cannot live with.
- How long should I spread it over if I choose to?
- Most people who spread do so over three to twelve months. Longer periods leave more money uninvested for longer, which increases the expected cost without much additional protection.
- Does this apply to regular monthly investing from salary?
- No, and it is a common confusion. Investing each month as you earn is not dollar-cost averaging in this sense, because there is no lump sum sitting in cash. It is simply investing as the money arrives, which is the correct thing to do.
- Why do the instalments increase?
- Because the uninvested cash earns interest before its turn comes. Splitting the growing remainder evenly across the remaining months produces slightly larger later instalments.
Next
- Sequence of Returns Risk
The same lesson about timing, from the drawdown side.
- Fee Drag Calculator
Whichever route you pick, the ongoing cost matters more than the entry timing.
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