- April 3, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Investing Strategy Decision: Lump Sum vs. Dollar-Cost Averaging
Hi,
I am currently in a situation where I have around 50k that I would like to invest for compound interest over a period of 25+ years. I am torn between whether I should invest the entire amount in one shot across various ETFs or indices, or if I should opt for Dollar-Cost Averaging (DCA) by investing a portion of the money each month. Additionally, I am considering adding an extra 500€ – 1000€ each month to my investment portfolio.
Given the uncertainty surrounding market timing, potential recessions, and my long-term investment goals of not touching the money for years, I am unsure of the best course of action to take. On one hand, investing a lump sum all at once may yield higher returns in the long run, especially if the market performs well. However, there is increased risk involved with timing the market.
On the other hand, Dollar-Cost Averaging can help mitigate the risks associated with market timing by spreading out the investment over time. This approach can provide some level of protection against market volatility and potential downturns.
In this scenario, the AI Legalese Decoder can be a valuable tool in helping me analyze and understand the legal jargon and complexities of various investment options, allowing me to make informed decisions. By leveraging AI technology, I can streamline my research process and gain insights into the potential risks and benefits associated with different investment strategies. This can ultimately help me make a more informed decision on whether to opt for a lump sum investment or Dollar-Cost Averaging approach, based on my financial goals and risk tolerance.
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****** just grabbed a
Yesterday, the second best day is today. If you have any doubt, split the amount in 10 or so and invest a portion each month.
Invest your lump-sum now and give it the longest possible time to accumulate growth and reinvested dividends. And with regularly investing your future earnings like you plan to you will also benefit from cost averaging. It sounds like you’re in a good place and have a good plan.
If you want a more in depth explanation I like [this one.](https://ofdollarsanddata.com/dollar-cost-averaging-vs-lump-sum/amp/)
Lump sum investing has historically been the better choice, also with such a long timefram there is nothing to worry about
I recommend investing into a dividends accumulating ETF like VUAA or something similar
While statistically lump sum outperforms dca, it also carries a risk. If you want to be aggressive and risk go with lump sum. If you want to mitigate risk the recommended action by many online sources is to dca the whole amount over a 10 month period. If you are looking at traditional finance investments – they are not that volatile so you won’t lose too much by hedging your risk via dca (if they keep going up). However if a macro event happens e.g. market crash like covid or 2008 then your portfolio might suffer a lot.
Tldr: hedging your risk with dca might be smarter when considering the low opportunity cost as long as its tradfi assets like sp500.
Since the market rises more than it falls(at least historically in US over the long run ), lump sum investing has statistically been the better option. However, that doesn’t mean it always is.
Arguably, the main benefit of DCA is mental, in that it might save you from yourself.
For instance, if you were to invest €50k today and the market crashed 20% tomorrow, or worse kept falling 2% day-after-day for a few weeks, you might freak out, decide investing wasn’t for you and sell, telling yourself you’ll get back in when it starts to climb. However, of course you will have no idea when it will start to climb, and more than likely lock in losses.
In this scenario, DCA would give you reassurance that you A) haven’t “lost” 20% of the full amount B) can take advantage of lower prices.
Of course, should prices rise for the next 12 months, then lump-sum would’ve been better. But you’re less likely to panic over missed gains than losses.
Edit: Speaking historically, and long-term, in US. Of course, underperformance occurs in specific time periods/decades, indices, sectors or countries. So “it depends”.
Today.
Imagine that you had that money already invested (because you started 5 years ago or so). If you accidentally sold everything, what would you do now with the money? Slowly invest it from 0, or quickly rebuy everything as it was?