Lump sum or spread it out

[BuckyBadger]

So I hear about dollar cost averaging and it made me wonder -- let's say you have a lump sum to invest. Should you put it all into an account, say an indexed target date fund, all at once, or should you spread the payments out?

I'll have a lump sum to possibly invest in June and I'm not sure if I should put it all in right at once or not.

(I may also attack my mortgage, but I'm wondering about the dollar cost averaging principle here.)

[MonkeyMama]

Dollar cost averaging is good, but having the cash to invest sooner, usually wins statistic-wise. The sooner you invest it the better.

The exception being a high likelihood of falling stock prices. If you really feel that the market is too bullish and you want to trickle it in while you wait and see what happens... For the most part I wouldn't recommend it. But I do know people who did this in 2006/2007 and made out well. That said, a stock market drop like that doesn't happen terribly often.

I have mostly seen articles where the statistics show that earlier contributions will usually beat dollar cost averaging.

[jpg7n16]

For a single lump sum, over a short period, I don't really think it matters. It's just a mind trick to make the investor feel as though they didn't invest a 'huge' sum of money all at once. 4 investments of $25k is easier on the mind than 1 investment of $100k.

The DOW is at $12,250 and it's unlikely to fluctuate wildly over the next 6-12 months. Maybe +/- 2k.

So if 40 years from now, the DOW is at $25k, how much difference will it make whether you were able to DCA down to $12,000? Not much. And since there's no guarantee that prices will fall (DCA only benefits when prices fluctuate down and back) you're just as likely to DCA up to 12,500.

Now for regular investing over a long period of time, DCA will work very well. For the situation you're in, I don't think it will make much long term difference.



Personally, I'd invest it all as soon as I could transfer it to the accounts and get an order placed.

[happygirl]

We fully fund our IRA's in January. We considered doing monthly payments throughout the year to equal 5k each, but in the end we based our decision on laziness. I didn't want to have to write the check each month and like jpg said, over a 20 year period the likelihood that a few months will make a significant difference is slim. Now I don't have to worry about making another payment until next January.

[bjl584]

Dollar Cost averaging will give you more market exposure and will eliminate some of the daily fucuations that occur in the market. But, since you are getting a lumpsum payment, I would invest it all at once.

You are thinking about paying down debt with it, so you may want to just park the money in a cash account until you are 100% sure as to what you are going to do with it before making an investment decision.

[kork13]

Dollar cost averaging is good, but having the cash to invest sooner, usually wins statistic-wise. The sooner you invest it the better.

The exception being a high likelihood of falling stock prices. If you really feel that the market is too bullish and you want to trickle it in while you wait and see what happens... For the most part I wouldn't recommend it. But I do know people who did this in 2006/2007 and made out well. That said, a stock market drop like that doesn't happen terribly often.

My thoughts exactly. If you have the cash in hand, just use a lump-sum (unless you're expecting values to drop--then use DCA). But if you can't do a large lump sum, DCA is an excellent strategy.

You might think of DCA as a whole bunch of periodic "lump sum" investments, just normally with smaller amounts of money.

[littleroc02us]

My wife and I dollar cost average our Roths, 800 per month automatically deducted from our paycheck. What I like about this idea is that we are exposing our money to the ups and downs which should average out. I also think that when you wait to the end, what happens if your short on cash due to an unexpected expense or something?