DCA vs. Lump Sum Calculator

What is Dollar-Cost Averaging (DCA)?

Dollar-Cost Averaging is an investment strategy where you divide a large sum of money and invest it in smaller, fixed amounts over a set period. For example, instead of investing $12,000 all at once, you might invest $1,000 every month for 12 months.

The goal is to reduce risk. By spreading out your investment, you avoid the bad luck of investing all your money right before a market crash. When the market is down, your fixed dollar amount buys more shares, and when it's up, it buys fewer. This "averages out" your purchase price over time.

Lump Sum vs. DCA: The Model

This calculator compares these two strategies using your estimated annual return. It makes a key assumption: the market goes up over time (based on your positive return rate).

• Lump Sum: Your *entire* investment amount is put into the market on Day 1. It immediately starts compounding for the full investment period. Curious how that initial sum grows? Check our Compound Interest Calculator.
• DCA: Your investment is split into monthly payments over your chosen "DCA Period." Only the money that has been invested is compounding. The uninvested cash (sitting "on the sidelines") is assumed to earn no return.

Which Strategy Is Better?

Statistically, studies (like those from Vanguard) show that about two-thirds of the time, **Lump Sum investing performs better** than DCA. The reason is simple: "time in the market beats timing the market." Because markets historically trend upward, the sooner your money is fully invested, the more time it has to grow and compound.

However, DCA is extremely popular for a reason: **it manages emotional risk.** Investing a large windfall (like an inheritance or bonus) all at once can be terrifying. If the market drops 20% the next month, it feels terrible. DCA is a psychological tool that helps investors get their money into the market without the stress of trying to find the "perfect" time, making them more likely to stick with their plan. Worried about market drops? Visualize volatility with our Sequence of Return Risk Visualizer.