Imagine you just received a $50,000 bonus or inheritance. You know you should invest it in the stock market, but the news is terrifying. Everyone is predicting a crash.

Do you dump the entire $50,000 into the S&P 500 today (Lump Sum), or do you set up an automated system to invest $5,000 a month for 10 months (SIP / Dollar Cost Averaging)?

You can model both scenarios using our Investment Calculator and our SIP Calculator.

The Mathematical Answer: Lump Sum

Historically, the stock market goes up about 70% of the time. Therefore, mathematically, getting your money into the market as fast as possible yields the highest return. Vanguard conducted a massive study and found that Lump Sum investing beats Dollar Cost Averaging roughly 66% of the time across global markets.

(Once that lump sum starts growing, check its true annualized performance using our CAGR Calculator).

The Psychological Answer: SIP / DCA

However, humans are not robots. If you invest $50,000 on Monday, and the market crashes 20% on Tuesday, you will lose $10,000 overnight. For a beginner, the psychological pain of that loss will likely cause them to panic and sell at the bottom.

If you use a Systematic Investment Plan (SIP), you slowly ease your money into the market. If the market crashes during your 10-month window, you actually benefit because your monthly $5,000 starts buying cheaper and cheaper shares, pulling down your overall cost basis. (To see how this works, read our guide and use our Stock Average Calculator).

Final Takeaway

If you are an experienced investor with a stomach of steel, dump the lump sum in today. If you are terrified of a market crash, use Dollar Cost Averaging. You can set up your automated timeline today with our SIP Calculator.