Mon 21 Nov 2005
Lump Sum investing is best if you have a large sum of money to be invested
Lump Sum investing, you take all the money to be invested and invest it today.
The method suited for investing such as Dollar Cost Averaging, are not the best if you have a large amount of money. For example you receive $200.000 in inheritance; the best way would probably not be to dollar cost average it over a period of 12 months.
It all depends on the market and if it will take a down turn, which nobody really knows. If the market declines Dollar Cost Averaging will smooth out any downturn.
Risk of being out of the market
The risk of being out of the market is far greater than most people realize. Looking at previous performance of the stock market and the long term upward trend - you are in much greater risk of missing upward potential by not investing all the money by “Lump sum investing”.
Lump sum may not be ideal for older people receiving their pension payouts, since older people can not have the long time horizon on the investment.