Dollar-cost averaging vs. lump-sum investing

Dribbling a small amount of money into stocks is not necessarily the most lucrative investment strategy

Tom Lauricella 26 November, 2019 | 1:02AM

Niagara Falls

For investors, there are fewer more nerve-wracking moments than deciding how to invest a big cash windfall, the kind that might come from the sale of a business, an inheritance, or a hefty bonus. The instinct among many individual investors is often to gravitate toward dollar-cost averaging, or DCA.

Investing a little at a time has become conventional wisdom, thanks in part to confusing the process of investing through defined contribution plans, such as pension plans in the US, with dollar-cost averaging. (Defined contribution plans actually do not involve dollar-cost average because they fully invest funds as soon as they become available from a person’s pay).

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Tom Lauricella  Tom Lauricella is Editor for Morningstar Direct, the firm’s cloud-based investment analysis platform.

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