Lump Sum vs DCA
Compare investing a lump sum upfront against dollar-cost averaging over time.
How It Works
The Lump Sum vs Periodic Investing Calculator compares two strategies for deploying a fixed amount of capital. The lump sum strategy invests everything on day one, capturing the full effect of compounding over the entire time horizon. The DCA strategy splits the same total into equal periodic investments spread across the full horizon.
Enter your total investment amount, expected annual return, time horizon, and how frequently you would dollar-cost average. The calculator instantly shows which strategy produces a higher ending balance and by how much.
FAQ
Which is better — lump sum or DCA?
Historically, lump sum investing has outperformed DCA about 67% of the time because markets rise more often than they fall. By getting your money in earlier, you benefit from more time in the market. However, DCA reduces the psychological risk of investing right before a market crash.
What is dollar-cost averaging?
Dollar-cost averaging (DCA) involves investing equal amounts at regular intervals regardless of market conditions. This reduces the risk of poor market timing by spreading out your entry points.
Does this account for market volatility?
This calculator uses a simplified fixed annual return assumption. In reality, market returns are volatile and unpredictable. The calculator shows expected values under a constant growth rate, which is useful for comparing strategies but should not be taken as a prediction of actual returns.
Does DCA frequency (monthly vs yearly) matter much?
Monthly DCA performs very similarly to lump sum over long periods because most of the money is invested within the first year anyway. The longer the DCA period, the more lump sum tends to pull ahead due to earlier compounding.
When should I use DCA?
DCA is often recommended for investors who receive income regularly (like a salary) and want to invest automatically. For a large windfall, the historical data favors lump sum, but the right choice depends on your risk tolerance and sleep-at-night factor.
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