Investing a lump sum

If you receive a lump sum of any amount, whether an annual bonus or an inheritance, are you better off investing it all at once or gradually?

The answer isn’t the same for everyone because personal factors matter as much as analyzing the markets.

Studies point to all at once

Investment analysts have examined the results of lump-sum investing versus gradual investing, based on a variety of asset allocations, stock markets and time periods. The studies consistently indicate that investing the sum all at once wins out in most situations. This includes two recent studies by Vanguard and PWL Capital showing that lump-sum investing leads about two-thirds of the time.¹ The reason is that markets generally trend upward over time, and investing a lump sum all at once gives you more time in the markets. If you invest smaller amounts periodically in a generally rising market, you miss much of the growth and buy in at progressively higher prices.

When investing gradually pays off

Investing a series of smaller amounts can lead to greater returns if the market suffers a severe or prolonged downturn soon after the initial investment. In this case, a lump-sum investment loses value and must recover. On the other hand, investing smaller amounts periodically means you’ll purchase some investments at lower prices—investments that stand to gain during the expected rebound. 

The gradual approach also offers a psychological benefit to anyone worried about investing the entire lump sum just before a severe market correction or crash.

When you need to decide how to invest a lump sum, we’re here to guide you. We’ll consider your risk tolerance, investment objectives and time horizon to help you decide between investing the amount all at once or gradually. You might even prefer a hybrid approach, where you invest a considerable portion right away and the rest periodically.

¹ Vanguard, “Cost averaging: invest now or temporarily hold your cash?” 2023.
   PWL Capital, “Dollar-cost averaging vs. lump-sum investing,” 2020.