Comparisons Finance

Lump Sum vs Dollar-Cost Averaging

Investing everything at once versus spreading purchases over time: a worked example in a dip-and-recover market and a steadily rising one, and what each approach protects you from.

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With a lump sum you buy everything today. With dollar-cost averaging (DCA) you invest equal amounts at regular intervals, buying more units when the price is low and fewer when it is high. Work out the average price you paid with the Stock Average Cost Calculator; see Dollar-cost averaging for the definition.

Example 1: the price dips, then recovers

Invest $6,000 over six months. Prices at the start of each month: $100, $90, $80, $85, $95, $100, and the price ends at $100. The lump sum buys 60 shares at $100 and ends with $6,000. DCA of $1,000 a month buys 65.90 shares at an average of $91.04 and ends with $6,590.

Example 2: the price rises steadily

Invest $12,000 in a market rising 1 % a month for 12 months. The lump sum buys 120 shares at $100 and ends with $13,522. DCA of $1,000 a month ends with $12,809, because most of the money was invested later at higher prices.

What it comes down to

  • Lump sum wins when prices trend upward (the usual long-run case); DCA wins when prices fall first and then recover.
  • DCA reduces the risk of putting everything in just before a drop, and many people find it easier to follow.
  • Fees matter: with a per-trade fee, many small purchases cost more.
  • Uninvested cash earns interest while you wait, which narrows the gap.
  • Neither strategy removes market risk; both can lose money over a given period.

Try these tools

Stock Average Cost Calculator

Find your new average cost per share after buying more of a stock, how many shares you would need to reach a target average.

Investment Calculator

The Investment Calculator can help determine one of many different variables concerning investments with a fixed rate of return.

Average Return Calculator

Calculate the arithmetic mean and the geometric mean (annualized/CAGR) return for a series of up to five periodic percentage returns.

See also

  • Glossary Dollar-cost averaging
    Dollar-cost averaging means investing a fixed amount at regular intervals regardless of the price.
  • Glossary CAGR
    CAGR is the constant yearly growth rate that would take a value from its starting amount to its ending amount over a period.
  • Comparison Simple vs Compound Interest
    Simple interest is paid on the original amount only; compound interest is also paid on past interest.
  • Guide How Investment Returns Are Measured
    ROI, annualised return (CAGR), IRR, NPV and payback period explained with one worked example.
  • Guide How Compound Interest Works
    The compound interest formula with a worked $10,000 example, how compounding frequency matters, APR versus APY.

Frequently Asked Questions

When markets rise on average, investing the whole amount first has produced the higher result more often than not, because money spends more time invested. Dollar-cost averaging trades some expected return for less regret and less timing risk.

The mechanics are the same, but regular contributions from income are not a choice between two strategies: you have no lump sum to invest. This comparison is about money you already have.

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