When a windfall lands—bonus, inheritance, home sale—should it go into markets all at once or over time? In this Econverse episode, we decode Lump Sum vs Dollar-Cost Averaging (DCA) through two lenses: historical data and investor psychology.
Key insights:
Why lump sum historically outperforms most of the time
Why DCA remains popular despite lower average returns
How loss aversion drives real-world choices
A simple 3-step framework to pick a strategy and stick with it
Timestamps:
00:00 – The investor’s windfall dilemma
00:33 – Common scenarios and why this choice matters
01:04 – The fear of bad timing
01:32 – Lump Sum vs DCA explained
02:15 – Tradeoffs: time in market vs smoothing entry risk
03:08 – Historical data overview
03:38 – Lump sum wins ~2/3 of the time
04:16 – Example outcomes: the “cost” of DCA
05:05 – Global findings: similar results across regions
05:40 – Behavioral drivers: loss aversion and regret
06:15 – DCA as “emotional insurance”
07:02 – 3-step framework for your windfall
07:44 – Final thoughts: math vs human nature
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