On the other hand, if the market goes down from day one, your entire investment will go down as well, and you will have missed a lot of opportunities to buy in at a better price.
Of course, it's impossible to know how the markets will move from day to day or month to month. Individual results will always vary. And, if the market does go down immediately after you make a lump sum investment, there is sure to be some amount of regret. However, while we can't predict day-to-day movements, there is a century's worth of data showing that markets go up over time. The data suggests it's better to get in as soon as you can, making a lump sum a wise choice no matter what the markets do in the days afterward.
A 2021 report by Northwestern Mutual found that if you choose to make a lump sum investment instead of dollar-cost averaging, you are more likely to have a higher balance over time. The study looked at rolling 10-year returns on a $1 million portfolio from 1950 until the present day, and lump sum came out better no matter whether an investor bought all stocks, a mix of stocks and bonds, or all bonds.
Our philosophy of investing would tend to agree. At The Motley Fool, we aim to find great stocks and hold them forever through ups and downs and avoid market timing. Delaying investing, or investing a large sum of money in increments over time, is a form of market timing. The better move is to get in all at once and ride the ups, along with the occasional downs, for as long as possible.
The longer you are invested in great, market-beating companies, the better your portfolio will do. And that means buying in as soon as possible. As the Wall Street adage goes, "Time in the market beats timing the market." Lump sum investing maximizes time in the market.
