markets
Lump Sum Beats Averaging
The rule
Got a big amount? Putting it all in now usually beats dripping it in slowly.
Where it flips
If putting it all in at once will scare you into selling at the first dip, the safe feeling of spreading it out is worth more. The repair is to pick the path you can actually stick to.
Say you get a bonus or sell some property. You can invest it all today, or spread it over many months. Because markets rise more often than they fall, money invested sooner usually grows more. Spreading it out feels safer and calmer. But most of the time, the whole amount today wins.
A worked example
Aman got 6 lakh. He invested it all at once instead of over a year. On average, that early start earned him a little more. [illustrative]
How to spot it
- ·You hold cash for months waiting for the 'right' day
- ·A lump sum is sitting idle out of fear
- ·You confuse a monthly SIP of new savings with sitting on old cash
J. L. Collins · The Simple Path to Wealth