Lump Sum vs Dollar Cost Averaging Simulator

Lump sum vs DCA over for
TLDR

LS outperformed DCA in 74.36% of times (vs. 25.64% for DCA)

LS had higher max drawdown -48.59% (vs. -41.99% for DCA)

LS outperformed DCA in higher average return 9.37% (vs. 4.97% for DCA)

Lump sum vs. DCA return over 12 months sliding window
Comparison over different DCA periods (DCA on S&P 500)
LS wins DCA wins LS return DCA return LS drawdown DCA drawdown
LS vs 3 months DCA 65.38% 34.62% 2.28% 1.52% -40.86% -34.11%
LS vs 6 months DCA 69.65% 30.35% 4.60% 2.64% -46.83% -38.68%
LS vs 12 months DCA 74.36% 25.64% 9.37% 4.97% -48.59% -41.99%
LS vs 24 months DCA 79.84% 20.16% 19.75% 9.95% -51.62% -46.35%
LS vs 36 months DCA 79.63% 20.37% 31.39% 14.88% -46.89% -47.27%
Comparison over different market state (DCA over 12 months for S&P 500)
LS wins DCA wins LS return DCA return LS drawdown DCA drawdown
LS in all-time-high 78.00% 22.00% 11.70% 6.51% -42.04% -33.57%
LS in < 5% from all-time high 75.89% 24.11% 10.12% 5.09% -45.35% -38.00%
LS in < 10% from all-time high 79.59% 20.41% 8.79% 3.61% -47.84% -41.99%
LS in < 20% from all-time high 62.30% 37.70% 6.56% 4.94% -48.59% 0.00%
LS in < 30% from all-time high 69.59% 30.41% 3.93% 2.38% -32.79% -27.93%
LS in > 30% from all-time high 86.59% 13.41% 17.98% 8.79% 0.00% 0.00%
Comparison over different asset classes (DCA over 12 months)
LS wins DCA wins LS return DCA return LS drawdown DCA drawdown
S&P 500 74.36% 25.64% 9.37% 4.97% -48.59% -41.99%
Nasdaq 65.79% 34.21% 24.53% 12.58% -63.35% -55.96%
Total Stock Markets 65.61% 34.39% 8.29% 4.80% -29.92% -29.04%
REITs 60.66% 39.34% 4.67% 2.48% -64.09% -59.22%
Gold 63.47% 36.53% 9.53% 5.11% -29.28% -25.94%
Bitcoin 63.14% 36.86% 159.40% 70.96% -83.62% -65.32%

What is Lump Sum investing?

TLDR: Investing all the money at once.

In terms of investing, a "lump sum" refers to a single, large sum of money that is invested all at once, as opposed to smaller amounts invested over time through regular contributions.

For example, if you inherit a large sum of money or receive a bonus from your employer, you may decide to invest that money as a lump sum rather than spreading it out over a period of time.

Investing a lump sum can have advantages and disadvantages. On one hand, if you invest at the right time, you may be able to take advantage of market conditions and potentially earn higher returns. On the other hand, if the market experiences a downturn after you invest, you could experience significant losses.

It's important to carefully consider your investment goals and risk tolerance before deciding whether to invest a lump sum or make regular contributions over time. It's also a good idea to consult with a financial advisor who can help you make the best decision for your individual circumstances.

What is Dollar-Cost-Averaging investing?

TLDR: Dividing the sum into smaller amounts and investing them regularly over time (eg. monthly).

"Dollar-cost averaging" (DCA) is an investment strategy where an investor invests a fixed amount of money at regular intervals, regardless of the market price of the investment.

For example, if an investor decides to invest $500 every month into a mutual fund, regardless of whether the fund's price is high or low, they are using the dollar-cost averaging strategy.

The idea behind DCA is to reduce the impact of market volatility on investment returns. By investing a fixed amount of money at regular intervals, an investor will buy more shares when prices are low and fewer shares when prices are high. Over time, this can help to smooth out fluctuations in the market and potentially lead to better overall returns.

DCA is often recommended for those who are new to investing or who may be uncomfortable with the idea of investing a lump sum all at once. However, it's important to note that DCA is not a guaranteed way to make money and may not be the best strategy for all investors or all investment types. It's important to carefully consider your individual circumstances and investment goals before deciding on a strategy.

What is better? Lump sum or Dollar-Cost-Averaging (DCA) investing?

TLDR: Most of the time, lump sum beats DCA as most of the time, markets are rising.

There is no one-size-fits-all answer to the question of which approach is better. The choice between lump sum investing and DCA largely depends on individual circumstances and investment goals.

If an investor has a large sum of money available for investing and is comfortable with the potential risks associated with investing all at once, lump sum investing may be the better approach. On the other hand, if an investor is more risk-averse or does not have a large sum of money available for investing, DCA may be the better approach.

Ultimately, the most important thing is to carefully consider your individual circumstances and investment goals before deciding on an investment strategy. It is always advisable to consult with a financial advisor who can help guide you in making the best decision for your financial future.