{"id":2204,"date":"2024-06-26T20:17:30","date_gmt":"2024-06-26T20:17:30","guid":{"rendered":"https:\/\/www.gunderwealth.com\/?p=2204"},"modified":"2024-06-27T18:52:21","modified_gmt":"2024-06-27T18:52:21","slug":"dollar-cost-averaging","status":"publish","type":"post","link":"https:\/\/www.gunderwealth.com\/dollar-cost-averaging\/","title":{"rendered":"Dollar Cost Averaging vs. Lump Sum Investing"},"content":{"rendered":"

[et_pb_section fb_built=”1″ admin_label=”Section” _builder_version=”4.16″ da_disable_devices=”off|off|off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row admin_label=”Row” _builder_version=”4.16″ global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_image src=”https:\/\/www.gunderwealth.com\/wp-content\/uploads\/2024\/06\/Untitled-design-2.png” alt=”Dollar cost average DCA” title_text=”Dollar cost average DCA” align=”center” force_fullwidth=”on” align_tablet=”center” align_phone=”” align_last_edited=”on|phone” _builder_version=”4.25.2″ max_height=”800px” global_colors_info=”{}”][\/et_pb_image][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.16″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” collapsed=”off” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Text” _builder_version=”4.25.2″ ul_line_height=”1.7em” header_line_height=”1.5em” header_3_line_height=”1.5em” background_size=”initial” background_position=”top_left” background_repeat=”repeat” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n

When it comes to investing, diversification and staying invested are the best ways to achieve long-term financial goals.\u00a0 However, this is often easier said than done, especially with the markets near all-time highs. Is there an optimal frequency to invest? Let’s get into the math of dollar cost averaging and lump-sum investing. The math, however, may not be the best solution for you!<\/p>\n

Is dollar cost averaging worth it?<\/h3>\n

Markets are uncertain; whether it\u2019s the upcoming presidential election, geopolitical conflict, or the direction of interest rates, investors may worry that the market could dip just after they invest.<\/p>\n

But remember, just because the market is at a peak doesn\u2019t necessarily mean it\u2019s \u201cdue for a pullback.\u201d<\/p>\n

Ironically, it can be psychologically challenging to invest whether the market is rising or falling, for fear that it might be at its peak when rising or fall further when declining.<\/p>\n

How to invest if you have a liquidity event<\/h3>\n

Knowing when and how to invest may be difficult if you suddenly come into a large sum of money through an annual bonus, the sale of a business, or an inheritance. In the long run, investing can turn savings into wealth. However, market volatility can derail even the most steadfast investors in the short run. This is where dollar-cost averaging (DCA)<\/strong> can help.<\/p>\n

With a DCA <\/strong>approach, investors regularly invest a set amount on a pre-planned schedule, which reduces the temptation to react to market moves and try to time the market.<\/p>\n

Which method performs best over time?<\/h3>\n

While DCA may not be the mathematically optimal way to invest, it may help investors stay focused on the long run without trying to time the market.\u00a0 And remember, getting invested sooner is better than waiting for the right timing.<\/strong><\/p>\n

If you already contribute to your employer-sponsored plan (i.e., 401(k), 403(b)) via your paycheck, this is DCA!<\/strong>\u00a0 The frequency isn\u2019t as crucial as simply sticking to a plan<\/strong> and automating it.<\/strong><\/p>\n

In contrast, investing all at once is known as lump sum investing<\/strong>. How your portfolio performs in the short run is determined by how the market performs immediately after the investment.<\/p>\n

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The chart above illustrates the hypothetical returns between these two methods beginning in 2000.<\/p>\n