DCA vs Lump Sum
You get a pile of cash. Do you invest it all at once or drip it into the market over time? This study shows how a simple DCA schedule compares to a one-shot lump sum.
TL;DR
- Lump sum usually wins on long-term growth if markets go up on average.
- DCA smooths the ride and can hurt less if you invest right before a drawdown.
- The real question is whether you can emotionally handle a bad outcome right after investing.
Method
We compare two ways of putting the same total amount into a broad US stock index over a one-year buy window:
- Lump Sum: Invest 100% of the capital at the start (Month 1) at the prevailing price and hold for the full 5-year path.
- DCA (12 months): Split the same total into 12 equal chunks and invest once per month from Month 1 to Month 12, then hold the resulting position for the rest of the 5-year path.
Both paths then sit with no further contributions. Returns are modeled using monthly total returns of a broad stock index; fees and taxes are ignored. The underlying return sequence is the same for both; only the timing differs.
The chart and table use stylized 5-year paths to show typical behavior of lump sum versus DCA. They are not a precise replay of a specific ETF or historical window.
Notes
- Both approaches invest the same total amount; only the timing differs.
- DCA is not “more money” being added. It’s the same capital spread over 12 buying points in the first year.
- Lump sum is fully exposed to the market from day one, for better or worse. DCA ramps in more slowly, muting early drawdowns but also delaying exposure to gains.
- The curves are stylized over a 5-year horizon. Change the start date or volatility and the exact gap moves, but the basic trade-off stays similar.
- Educational illustration only. Not personalized investment advice or a guarantee of future results.
Key Chart
Normalized value of a one-time lump sum versus a 12-month DCA schedule. Both invest the same total amount; the gap is the cost or benefit of waiting to get fully invested.
What the data says
In a market that drifts upward over time, lump sum usually finishes ahead because more of your money is exposed to growth earlier. DCA lags a bit because part of the cash is sitting on the sidelines waiting to be deployed.
Where DCA helps is the path: if your start date is unlucky and a drawdown hits right after you begin, the lump-sum line takes the full hit. The DCA line only has a fraction invested early on, so the early pain is muted.
The summary table below uses stylized numbers that match the chart: lump sum a bit ahead on CAGR, DCA a bit smoother on drawdowns.
When lump sum may fit you
- You have a long horizon and accept that short-term moves are noise.
- You’re investing into broad, diversified index funds, not a few speculative names.
- You won’t panic if markets drop right after you invest.
- You care more about expected growth than about smoothing the first year’s path.
When DCA may be a better dial
- A sudden large lump sum makes you nervous and likely to second-guess yourself.
- You’re worried specifically about “bad timing” around a recent run-up.
- You prefer a pre-committed plan (12 buys) over a one-shot decision.
- You know you’ll stick with the DCA schedule even if the first few months feel rough.
The biggest mistake is not that you chose DCA instead of lump sum; it’s bailing out of whichever plan you picked when the first drawdown hits.
Summary
| Series | CAGR | Max DD | Worst 12-mo |
|---|---|---|---|
| Lump Sum (Month 1) | ≈6.2% | ≈−15.0% | ≈−12.0% |
| DCA (12 Months) | ≈5.8% | ≈−11.0% | ≈−9.0% |
Stylized values consistent with the 5-year chart paths. Real outcomes depend on the specific start date, volatility, and actual market returns.
CLUSTER
Next steps: choose a plan you will actually stick to
The practical decision framework: expected return vs behavior risk.
The real enemy is staying in cash too long after deciding to invest.
Step-by-step setup so you start executing instead of thinking forever.
DCA vs lump becomes irrelevant if you keep making the same behavioral errors.
CLUSTER
Next steps: reduce friction so contributions happen automatically
Automation reduces decision fatigue and prevents skipped months.
If the process feels expensive, you delay. Remove friction first.
FX costs can turn monthly investing into a hidden recurring fee.
Set a realistic starting amount and schedule that you can maintain.
FAQ
Which wins more often, DCA or lump sum?
In markets that trend up over time, lump sum usually ends higher because more of your money is exposed earlier. That is exactly what the study shows.
DCA trades some expected return for a smoother path and less regret if your start date is unlucky. The choice is about behavior, not finding a magic edge.
How long should a DCA schedule last for a lump sum?
Many people pick 6–12 months for a one-off lump sum. Spreading it over many years starts to look like sitting in cash forever, which is exactly the drag this study warns about.
The DCA vs Lump Sum guide walks through concrete timelines and examples.
Can I DCA a lump sum and still add regular monthly investments?
Yes. Think of the lump sum as a temporary extra flow that you phase in, on top of your normal monthly contributions. The key is committing to the schedule instead of pausing every time markets wobble.
For building the underlying monthly habit, see How Much Money Do I Need to Start Investing?
What if I DCA and the market just goes up the whole time?
Then lump sum would have won by more. That is the cost you knowingly pay for smoothing the path. The important part is that you still end up fully invested instead of stuck in “wait and see” mode for years.
The study here is meant to set expectations: DCA is for managing feelings about timing risk, not for beating the mathematically better choice in every scenario.
Bottom line
Lump sum is mathematically favored in an upward-trending market, but DCA can be psychologically safer. Pick the plan you’ll actually follow through an ugly first year—and then leave it alone.
Go back to the Learn path →Ready to put a plan on rails? Set up either a one-time deploy or an automated DCA schedule at a broker you can actually stick with.
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Want to see different paths? Use TradingView to inspect past drawdowns and ask yourself how you’d feel if your lump sum landed right before one.
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Educational content only. Not personalized investment or tax advice.
Investments can lose value and past performance does not guarantee future results. You are responsible for your own decisions and for confirming tax and legal rules in your country.