Lump Sum Investment (LSI) vs. Dollar Cost Averaging (DCA)

LSI and DCA are two methods for investment. To make it simple, the former is to invest a large sum at one go while the latter is to invest a little bit at a time. The performance of both methods differ and would depend on the condition of the market over the investment timeframe.

In such a market, DCA would incur less "loss" compared to the case where a lump sum is invested right at the start of this timeframe.

For such a scenario, the DCA method would still triumph over the LSI method as one would have benefited from the lower average cost.

For such scenario, the lump sum method would out perform the DCA strategy. In the long term, market would generally be as such. This method would benefit those who have a pile of cash very early in life and have a very long investment runway ahead.

DCA could help most investors in their emotional stability as they can invest like a machine regardless of the market conditions and avoid bailing out during the tough times and actualising their losses - the DCA method would actually have help them stay invested and get a lower average cost!

As mentioned above, LSI and DCA are favourable for different scenarios. In reality many investors employ a hybrid of both methods - some may activate their war chest during a market crash or during a period of depression; either pumping in a lump sum (by timing near the absolute trough of the market) or increasing the amount for DCA during such times for bottom fishing.

Ultimately there are more than 50 shades of grey and the employment of both methods are subject to the creativity of the investor.

As for myself, I employ the hybrid methodology.