The robust way to approach this question ex-ante is through probability distributions.
The expected return through lump sum is higher than DCA. However, the variation in possible returns is also larger due to more significant impact of a potential market crash on the outcome.
The expected return through DCA is lower than lump sum, but the variation in returns is also lower due to less dependence on any given start date.
Within this framework, investing the windfall over a finite time period is a form of diversification, i.e. time diversification. Do you prefer to maximize the expected return or minimize the variance of possible returns? or somewhere in between --
Only you can answer that.
The expected return through lump sum is higher than DCA. However, the variation in possible returns is also larger due to more significant impact of a potential market crash on the outcome.
The expected return through DCA is lower than lump sum, but the variation in returns is also lower due to less dependence on any given start date.
Within this framework, investing the windfall over a finite time period is a form of diversification, i.e. time diversification. Do you prefer to maximize the expected return or minimize the variance of possible returns? or somewhere in between --
Only you can answer that.
Statistics: Posted by BenS — Sun May 05, 2024 10:35 pm — Replies 19 — Views 1464