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Invest all at once or a little at a time? Experts, study disagree

A trader watches the market on the floor

A trader watches the market on the floor of the New York Stock Exchange. If you want a debate, ask financial planners which is better, investing in a lump sum, or dollar cost averaging. Credit: Getty Images/Drew Angerer

If you want a debate, ask financial planners which is better: investing in a lump sum, or dollar cost averaging — taking a lump sum, divvying it up and investing it over a period of time? And with the markets so volatile right now, making the best choice matters more than ever.

The experts weigh in.

Lump sum lovers: Lawrence Solomon, director of financial planning and investments for OptiFour Integrated Wealth Management in McLean, Virginia, contends that conventional wisdom says if you’re contributing to a 401(k) or other retirement account, you’ll benefit by dollar-cost-averaging throughout the year.

However, a Vanguard study found on average, an immediate lump-sum investment outperformed a dollar-cost-averaging strategy across stock and bond markets and time periods. Using data from 1926 to 2016, Vanguard compared the historical performance of a U.S. 60 percent stock/40 percent bond portfolio invested in 12 equal monthly installments vs. the same amount invested immediately in a lump sum in the same portfolio. Over rolling 12-month periods, the immediate investment outperformed the dollar-cost-averaging strategy 68 percent of the time.

The case for DCA: Michael Osteen, founder of Port Wren Capital in Beaufort, South Carolina, recommends starting a position and adding to it as the price declines. “This will lower your cost basis and increase your gains long-term.”

Denise Nostrom of Diversified Financial Solutions in Medford says dollar cost averaging smooths the anxiety of investing.

“If you’re afraid of the stock market, but want to get your feet wet, dollar cost averaging allows you to slowly enter the market by putting money away monthly,” she says. “This gives you the opportunity to buy at different prices and if the market goes down, you can put more money into the market to take advantage of the cheaper prices.”

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