Lump Sum vs. DCA Calculator.
Should you invest a windfall all at once or spread it out over time? Compare expected final values, historical win rates, and drawdown exposure for both strategies.
Before you run the numbers.
This is the question every investing book eventually has to answer for readers who come into money — an inheritance, a bonus, a sale — all at once: invest it immediately, or dollar-cost average it in over several months?
The academic answer is well established and slightly counterintuitive: investing the full amount immediately (lump sum) beats spreading it out (DCA) in roughly two-thirds of historical rolling windows for broad equity markets, because more time in the market compounding tends to outweigh the risk of a bad entry point. This calculator runs both scenarios with your own numbers — amount, DCA period, expected return, and a time horizon — and shows the expected dollar gap.
But expected value isn't the whole story. DCA meaningfully reduces how much capital is exposed to a bad first month, which matters if a near-term drop would tempt you to sell at the worst possible time. The calculator also estimates worst-case month-1 drawdown for both strategies under your chosen volatility assumption, so you can weigh the math against your own ability to sit through a rough start.
Run your scenario.
The amount is split equally over this many months in the DCA scenario.
Historical S&P 500 long-run real return ~7% (FRED). Past returns don't guarantee future results.
Diversified equity (e.g., broad U.S. market index). Annual volatility ~15% — historical S&P 500 average.
Bottom line
Lump sum has higher expected value in ~72% of historical scenarios. DCA has lower volatility during the deployment window — valuable if a near-term drawdown would cause you to sell. Pick based on your behavioral risk tolerance, not just the math.
See a worked example
$50,000 to invest — either all at once, or spread over 12 months — at an assumed 7% annual return, held for 20 years after full deployment.
Lump sum: 50,000 × (1 + 0.07/12)384 ≈ $216,535
DCA: sum of 12 monthly installments, each compounding for its remaining months ≈ $208,543
Lump sum ends up about $7,992 (3.8%) ahead in this scenario — the cost of the extra 11 months DCA kept part of the money out of the market.
Educational tool, not financial advice. The "lump sum wins ~2/3 of historical scenarios" finding is well-established in academic research and is NOT a guarantee. Markets are volatile; actual outcomes depend on entry timing, asset class, and period. Consult a licensed financial professional before making investment decisions.
Taught in these books.
Common questions.
Why does lump sum win more often than DCA?
Because markets trend upward over long periods more often than they decline, and DCA by definition keeps part of your money out of the market (in cash, earning little) during the deployment window. The longer that window and the stronger the expected return, the more that opportunity cost adds up. This calculator quantifies the expected gap for your specific numbers rather than relying on the general finding.
If lump sum usually wins, why would anyone choose DCA?
Behavioral risk, not math. If investing a large sum right before a downturn would cause you to panic-sell and lock in losses, DCA's smaller initial exposure can produce a better real-world outcome even with lower expected value — because you're more likely to actually stay invested. The calculator's worst-case month-1 drawdown figures are there to help you judge whether that risk matters to you.
How is the volatility assumption used?
It sets the monthly standard deviation used to estimate a 2-sigma (roughly worst-1-in-40-months) down move in month one. Low volatility models a conservative/balanced portfolio (~8% annual), medium models a diversified equity index (~15%, the historical S&P 500 average), and high models concentrated growth exposure (~25%). It only affects the drawdown estimate, not the expected-value comparison.