You just came into a large sum of money. Could be an inheritance, a business sale, a 401(k) rollover. And now you're paralyzed trying to figure out when to invest it.

Do you invest it all today? Spread it out over six months? A year? Wait for the markets to drop or the perfect opportunity to cruise by?

In this episode, Cameron summarizes what the research actually says, and more importantly—when the math matters and when it doesn't.

 

More specifically, we discuss:

• What is Dollar Cost Averaging (DCA)?
• The Problem With Dollar Cost Averaging
• Vanguard's Research on DCA vs. Lump Sum Investing
• What If You End Up Investing "At All Time Highs"?
• How To Decide Whether or Not To Invest The Lump Sum or DCA Over Time

 

Resources:

• Access Episode Show Notes and Sign Up for the Retired·ish Newsletter
• Ask Cameron A Question!
• 2012 Vanguard: "Dollar-cost averaging just means taking risk later" https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf
• 2023 Vanguard: "Cost averaging: Invest now or temporarily hold your cash?" https://corporate.vanguard.com/content/dam/corp/research/pdf/cost_averaging_invest_now_or_temporarily_hold_your_cash.pdf
• Vanguard Summary Article: https://investor.vanguard.com/investor-resources-education/news/lump-sum-investing-versus-cost-averaging-which-is-better
• Kitces Article: "Dollar Cost Averaging Manages Risk But Reduces Returns" https://www.kitces.com/blog/dollar-cost-averaging-versus-lump-sum-how-dca-investing-can-manage-risk-but-on-average-reduces-returns/

 

Key moments:

(00:00) Invest All at Once Or Gradually Over Time?

(01:16) What is Lump Sum Investing vs Dollar Cost Averaging?

(05:18) The Math Problem with Dollar Cost Averaging

(07:35) Vanguard's Research on Lump Sum Investing vs Dollar Cost Averaging

(11:27) The All-Time Highs Myth

(16:07) The Impossibility of Being Right Twice

(18:44) Three Questions to Ask Before Investing a Lump Sum

(23:02) A Hybrid Approach to Investing a Lump Sum

(27:03) A Hierarchy for Investing a Lump Sum

(28:38) Get More Useful Information