Calculators / Portfolio
Lump Sum versus DCA
Feeding money in gradually feels safer, and sometimes it is. But markets rise more often than they fall, so money held back is money not compounding. Vanguard's work across US, UK and Australian markets found investing immediately beat cost averaging in roughly two thirds of the rolling periods tested. This shows you the expected cost of waiting on your own numbers.
Your numbers
Result
This is an expected-value comparison, not a forecast. Cost averaging still wins in the third of periods where the market falls while you are feeding money in, and the case for it is emotional rather than mathematical. That is a real reason, it is just not an arithmetic one.
Read the rule, the arithmetic and the honest list of where this breaks.
Open the playbookQuestions people ask
Which actually wins?
Investing immediately, roughly two thirds of the time, across the markets and periods Vanguard tested. The reason is unglamorous: markets rise more often than they fall, so cash held back is cash not compounding. The remaining third is not a rounding error though.
So is cost averaging a mistake?
Not necessarily. It is a worse expected outcome bought in exchange for a better worst case and a much better chance you actually go through with it. If spreading the money in is the difference between investing and not investing, spread it in. Just do it knowing the price.
Does this apply to money I earn monthly?
No. Investing each salary as it arrives is not cost averaging, it is investing immediately with the money you have. The question only arises when you are holding a lump you could deploy today, from a bonus, a sale or an inheritance.
What would flip the answer?
A market fall during your averaging window deep enough to more than offset the return you gave up by holding cash. The calculator shows that threshold. If you think a fall of that size is likely, the honest conclusion is that your asset allocation is wrong, not your deployment schedule.
Investments Playbook publishes educational research and general information. Nothing on this site is personal investment advice, a solicitation, or a recommendation to buy or sell any asset. Property and securities can fall in value. Past performance does not predict future returns. Figures shown are indicative and may be delayed. Always take regulated professional advice before acting.
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