Executive Summary: Investing a lump sum all at once usually wins on paper—but not by much. Whether you go all-in or ease in, what matters most isn’t timing the market; it’s getting invested and staying invested. Discipline beats precision.
Having cash to invest is a good problem to have—but it can still raise some issues. Moving from the comfort of a money market fund to the uncertainty of stocks is never easy, especially when markets feel expensive or volatile.
I regularly hear from IVA readers wrestling with that decision:
I am making my annual retirement contribution, but given the market's current volatility, I'm thinking of parking my contributions in a money market until things calm down.
Or as another subscriber put it:
I am leery of buying at today’s record highs.
I get it. No one wants to invest money only to see their account drop the next week. That hesitation is normal—but it can also be costly if it keeps you sitting on the sidelines.
If I could time short-term market moves, I’d tell you when to jump in—and probably be writing this from my own island. Since neither of us has that superpower, here’s how you can actually put your money to work—without losing sleep over the timing.
Key Points
- Investing a lump sum all at once has outperformed dollar-cost averaging about 70% of the time—but not by much.
- The biggest risk isn’t bad timing, but staying out of the market entirely.
- The best plan is the one you’ll actually stick with—discipline beats investing on your emotions.
Lump Sum or Dollar-Cost Average?
For those with a lump sum to invest, there’s a simple way to mitigate the risk of buying right at a market high: spread your purchases out over time—a strategy known as dollar-cost averaging (DCA).
So, which approach is better—investing it all at once or easing in gradually?
To find out, I ran a simple experiment. Two investors each had $1,000 to invest in 500 Index (VFIAX).
- The first investor put all $1,000 to work immediately—the lump-sum investor.
- The second dollar-cost averaged, spreading purchases evenly over six months. (You could stretch that out longer or compress it into a shorter window, but the results don’t change much.)
Then I ran the test 585 times—starting with the index fund’s 1976 inception and advancing the start date by 1 month each time.