“I have a big pile of cash. Should I go all in or invest it a bit over time?”

Without exaggerating I’ve seen this question hundreds of time. Is there a right answer?

Dollar Cost Average vs Lump Sum

So you have this load of cash – maybe you got a bonus or you just weren’t sure what to do with your savings and it built up over time. Now you want to invest it.

You could either throw the whole lot in at once (lump sum) or put part of it to work each month for the next 6-12 month or whatever. Which option will result in the greatest investment return?

Well – we won’t know until after the fact. Bummer, that, but what can you do? If one option means you take action vs doing nothing, then that is the right choice.

But… 90 times out of 100, lump sum will win. “Time in market is more important than timing the market.”

Or as Vanguard says, “Our research indicates that it’s prudent to invest a lump sum immediately.”

(That research has been in the form of a white paper, but all links I checked were broken. If anybody has a link I will add it here.)

Lump Sum

Why lump sum? The common retorts are:

“What if the market drops right after I make a big investment?!”


“The market is at all time highs! I don’t want to invest my whole cash hoard at these prices!”

Might the market drop immediately after your big purchase? Yes, certainly. That is what happened after my lump sum investment in 2007 after all. (Worked out ok anyway.)

But the more probable scenario is that the stock market continues to rise, because the markets normal status is to be at “all time highs” and “record prices.” So says the chart.

Data from multpl

When the market continues upward after your initial investment, dollar cost averaging just means your average cost is… higher.


For early retirees, sequence of return risk is of utmost importance – basically, you don’t want to retire into a sustained down market. This is what hurt people who retired in 1929, 1965, 2000, etc… and is why “the 4% rule” is not the 5%+ rule.

Or… it is what happened with Japan’s Lost Decades. One of the key lessons from this time period is, “Don’t go 100% cash to 100% stock at extreme valuations.”

Isn’t this the opposite of the idea of lump sum being better than dollar cost averaging? It is.

In the event that you are 100% cash (why though?) and you have been sitting on the sidelines as the market has gone up, Up, UP for the past many years (ahem), AND valuations are extremely high (maybe CAPE is something silly like 40+) and retirement is imminent, then dollar cost averaging may bring superior results…

data from multpl

Money Where Your Mouth Is

We recently got a mortgage on our fully paid for home. (Related: Getting a Mortgage Without a Job)

I immediately put the majority of that mortgage check into the market. Lump Sum.

Whether this wins in the short term is a question of whether the market tanks in the near future.

But so far the total return after expenses is about 7% in a bit over 3 months.

Anecdotally the lump sum investment is faring better than the wait and see approach – had I waited, I would have missed 2 dividend payments and a rise in market prices.


To lump sum or dollar cost average is a common question.

Because the market trends in the upward direction, lump sum investing will often outperform dollar cost averaging. So says Vanguard and others.

That is what we have done historically, including recently with a cash-out mortgage refinance.

There is an exception – were we at 100% cash and planning to retire early in short order, years away from Social Security, I would be less aggressive.

Dollar Cost Average or Lump Sum?