lump sum dump vs monthly investment

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etguy
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lump sum dump vs monthly investment

Post by etguy »

New Year is here ..... Happy New Year !!! I have some cash that I want to invest .... I am torn between lump sum investing vs monthly regular investment as they call it dollar - cost averaging. What is your experience on this ?
mhalley
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Re: lump sum dump vs monthly investment

Post by mhalley »

Ahh, th good old dca vs lump sum debate. I like to bring out bob for this. How did Bob, who was the worst market timer ever, do over his investing career?

https://awealthofcommonsense.com/2014/0 ... ket-timer/

But if you just inherited 6 or 7 figures, I wouldn’t look down my nose at you for dca the money.
heyyou
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Re: lump sum dump vs monthly investment

Post by heyyou »

From now until the end of your life, you will have done so much of both, this one time won't matter, nor will the next time. Investing early and often, is good general advice.
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willthrill81
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Re: lump sum dump vs monthly investment

Post by willthrill81 »

The math says that the lump sum beats out dollar cost averaging two-thirds of the time. So that's what the math says you should do if your goal is to maximize your long-term wealth.

But if your goal is to minimize your regret, you may wish to dollar cost average into the market over a period of time, perhaps a period of months or a year.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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bertilak
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Re: lump sum dump vs monthly investment

Post by bertilak »

willthrill81 wrote: Wed Jan 02, 2019 12:48 pm But if your goal is to minimize your regret, you may wish to dollar cost average into the market over a period of time, perhaps a period of months or a year.
I minimize regret the same way Harry Markowitz does.
  • Harry Markowitz won the Nobel Prize for exploring the mathematical tradeoff between risk and return. A few years ago the Wall Street Journal asked him how, given his work, he structured his own portfolio. He replied:
    I visualized my grief if the stock market went way up and I wasn’t in it – or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities.
    (From Rational vs. Reasonable, Dec 11, 2018, by Morgan Housel)
Whenever I have any money to invest, I invest it all (lump sum) so as to maintain my 50/50 AA.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
headedwest
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Re: lump sum dump vs monthly investment

Post by headedwest »

I used to DCA in all accounts, including taxable. Since I've been doing more tax loss harvesting, I've decided to go with what I see as a workable compromise -- quarterly investments in taxable with the first investment (this morning) diverting to Roth IRA a $7000 contribution (my max, since I'm over 50 years old). I continue to DCA into my workplace retirement account every pay period. For the taxable account, I've read on this forum that quarterly investments occurring after the dividend result in the best scenario for tax loss harvesting when factoring in dividends, and I can see this method still preserves the spirit of DCA. One of the reasons I feel comfortable doing this is that I'm also a bit obsessive about shifting where my workplace contributions go in terms of fixed income vs. equity indexes, should circumstances change, understanding when lump sums contributions will occur in taxable. For people who are more hands off, DCA across all accounts makes sense to me, despite the research favoring lump sum. I think the issue of having an appropriate asset allocation is important in this discussion, as well. If dropping a lump sum into your existing allocation keeps you up at night, it might be an indicator that you need a more conservative allocation.
WhiteMaxima
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Re: lump sum dump vs monthly investment

Post by WhiteMaxima »

DCA all time.
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CaliJim
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Re: lump sum dump vs monthly investment

Post by CaliJim »

bertilak wrote: Wed Jan 02, 2019 1:43 pm
willthrill81 wrote: Wed Jan 02, 2019 12:48 pm But if your goal is to minimize your regret, you may wish to dollar cost average into the market over a period of time, perhaps a period of months or a year.
I minimize regret the same way Harry Markowitz does.
  • Harry Markowitz won the Nobel Prize for exploring the mathematical tradeoff between risk and return. A few years ago the Wall Street Journal asked him how, given his work, he structured his own portfolio. He replied:
    I visualized my grief if the stock market went way up and I wasn’t in it – or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities.
    (From Rational vs. Reasonable, Dec 11, 2018, by Morgan Housel)
Whenever I have any money to invest, I invest it all (lump sum) so as to maintain my 50/50 AA.
excellent post
-calijim- | | For more info, click this Wiki
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bertilak
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Re: lump sum dump vs monthly investment

Post by bertilak »

DCA is for those who think it's safer to grab a tiger by the tail if you first sneak up on him!

(Bringing a tiger into the conversation is in honor of my Kipling avatar!)
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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Phineas J. Whoopee
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Re: lump sum dump vs monthly investment

Post by Phineas J. Whoopee »

willthrill81 wrote: Wed Jan 02, 2019 12:48 pm The math says that the lump sum beats out dollar cost averaging two-thirds of the time. So that's what the math says you should do if your goal is to maximize your long-term wealth.

But if your goal is to minimize your regret, you may wish to dollar cost average into the market over a period of time, perhaps a period of months or a year.
If I may add without arguing, there also exists regret at not having invested prior to a move up. I've seen it in friends and colleagues time and time again. Yes, I'm aware of research that says losing is more painful than winning is comfortable, but several, explicitly, described themselves as having lost money by not investing in time.

If a person is focused on short-term gain and loss in a long-term portfolio there's really not much to be done about it.

PJW
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willthrill81
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Re: lump sum dump vs monthly investment

Post by willthrill81 »

Phineas J. Whoopee wrote: Wed Jan 02, 2019 2:46 pmIf a person is focused on short-term gain and loss in a long-term portfolio there's really not much to be done about it.
Sadly, this is precisely the position my father has been in for a long time.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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