Dollar-Cost Averaging vs. Lump Sum

Compare investing a lump sum immediately against spreading it across 12 monthly purchases, under a chosen return path.

These are illustrative return paths you choose from, not predictions of any real market. Under a constant positive return, lump sum always wins mathematically — DCA's case is about reducing timing risk, not chasing a better average return.

Total to invest

Return path (12 months)

A drop in the first few months, followed by a recovery — the classic case for DCA.

Lump sum, ending value

$12,438

DCA, ending value

$13,068

DCA came out ahead by $630 under this return path.

How it works: the lump sum is invested in full on day one and compounds through every period's return. DCA splits the same total into 12 equal purchases, one per period, so later purchases miss earlier returns (for better or worse).

Limitations: both strategies use the exact same return sequence you selected — real markets don't repeat a chosen path, and no one knows the actual sequence in advance. See the Sequence-of-Returns Risk calculator for the same idea applied to retirement withdrawals.

Sources & further reading

Morningstar: Dollar-Cost Averaging vs. Lump-Sum Investing