Investing a Lump Sum in The Stock Market

I am off to Breckeridge this morning from New York. As usual, I planned late and the hotel for the conference my pal JC is organizing is sold out. I texted JC to see if he could help and got a friendly reminder that I am still a nobody:


I talk to young people about investing all the time and the question in the title of the post comes up a lot!

Nick has the answer to that:

What if the market crashes right after you invest? Wouldn’t it be better to average-in over time (i.e. dollar-cost averaging/DCA) to smooth out any unlucky timing on your part?

Statistically, the answer is no. In a paper from 2012, Vanguard found that 66% of the time it is better to invest your money right away (“Lump Sum”) rather than buying in over 12 months (“DCA”). I don’t disagree with Vanguard’s results (my results were strikingly similar), but I don’t think they went deep enough in explaining why this is true.

The rest of Nick’s article has a lot more good data and reasoning. Take a read.

Here is Vanguard’s research and paper on the same subject.