DCA vs lump sum

Vanguard’s 2012 study, “Dollar-cost averaging just means taking risk later,” looked at rolling 10-year windows across the US, UK, and Australia. Lump-sum investing beat dollar-cost averaging in about two-thirds of all windows. The US specifically: 66%. UK: 64%. Australia: 67%.

The 2026 AAII update found the same shape with newer data — over 20-year horizons, lump sum won 73% of the time. The longer the DCA window you choose, the worse DCA performs against just deploying the money.

Markets trend up roughly 70–75% of 12-month rolling periods. Sitting in cash during a positive-drift asset isn’t risk reduction — it’s a bet against the base rate. You’re not de-risking, you’re delaying exposure to expected return.

Every dollar you’re still planning to invest tomorrow is a dollar that didn’t earn anything today. Most of the time, that’s the trade.

“But what if I invest at the top?” It turns out that helps lump sum, not DCA. AAII looked at periods that started at an all-time high: lump sum still won 91% of the time (256 out of 281 periods). The reason markets are at all-time highs is that they trend up — and that trend keeps going more often than not.

DCA wins when the asset falls steadily after you invest. The 2000–2003 dot-com slide, the 2008 crash, 1974, 2022 — all windows where spreading purchases paid off. Try switching the asset above to gold and using a 2010 start: gold fell from 2011–2015, so DCA beats lump sum there.

The honest reason most people should DCA isn’t math — it’s behaviour. If you’d panic-sell after a 20% drop, lump-sum risk is real for you, and DCA is a hedge against your own regret reflex. Better to DCA and stay invested than lump-sum and bail at the bottom.

If regret risk is the issue, though, a lower stock allocation (say 60/40 with the calculator) is usually a more efficient hedge than DCA.