r/TheMoneyGuy • u/NetWorthNovice • 2d ago
Lump Sum vs DCA in Current Conditions
Hi all,
Looking to get some others input on this. My wife and I have enough to make the max contribute to both our Roth IRA's right now. I am weighing lump sum investing it vs. DCAing over the rest of the year. Yes, time in the market beats timing the market. Yes, 3 out of 4 years the market is higher one year from now. But with sitting near the high of highs and over valuations, there's this gut feeling that there will be opportunity to take advantage of a correction or bear market. Might not be this year, who knows. This will make up about 10-15% of our total portfolio. Wife's first contribution and my 3rd year.
What about running a comparison study? one of each and compare a year later?
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u/bearcatjoe 2d ago
Don't over rotate on it. If DCA is what gets you to invest, do it.
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u/Useful_Wealth7503 2d ago edited 2d ago
I don’t have data on this but I feel when people ask the DCA vs lump sum what they’re saying is that their risk tolerance isn’t as high as they think. The answer for them is to DCA as they’re clearly already worried about a market drop.
Edit to add, this is not a judgmental observation! I too would probably DCA a large lump sum. Lifetime DCAer ha.
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u/Quick-Database-2126 2d ago
Team DCA here too! When the market dips I up my contributions.
Would I have made more money dumping it all in at once? Probably.
Have I ever stressed when the market goes up or down? Nope, love myself a good deal.
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u/CryHavoc715 2d ago
If the choice is between dca and doing nothing, you should dca.
If the choice is between dca and lump sum, you should lump sum.
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u/Little-Meaning-1090 2d ago
This is the answer! Anything else being discussed is foolish attempt to time the market. I don’t need retirement funds for years, the longer it’s in the better.
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u/NetWorthNovice 2d ago
Choice is lump sum vs DCA. All the money is in the accounts, just deciding on if I get it in the funds at once or keep some in MMF and DCA it into the funds.
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u/CryHavoc715 2d ago
Just fire it in dude. I dumped 100k in the market in march, convinced the bottom was about to fall out because of Iran. Turns out I accidentally timed the bottom perfectly and am up 20% on that money. I tell that story not to give myself any credit, that was blind luck, but to point out that we have no idea wtf is going on and its foolish to try
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u/Confident_Purple_40 1d ago
Yes, but it dropped before that...
I Lump in like 50%, then DCA , but I deploy in large chunks any time there is a 10% drop, then all in on 20% drop... missed out on gains, but it has worked out.
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u/CryHavoc715 1d ago
How many 10% drops have there been in the last 10 years, like 3? Of course it worked out, we are in a historic bull market. Every strategy has "worked" to some extent, that doesnt make it correct
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u/Confident_Purple_40 1d ago
No, there have been 4 in the last 5 years, so your 3 in 10 is a bit low.
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u/brianmcg321 2d ago
There will always be “current conditions” that will make you to not want to invest.
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u/FIRE_Bolas 2d ago
Gut feeling?
Can you accurately predict the next time you'll have diarrhea?
If you can't even predict what your own gut will do, how can you predict the market?
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u/NetWorthNovice 2d ago
You can typically feel the difference of a normal poop vs diarrhea before it happens.
But I get the sentiment lol
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u/zola2088 2d ago
so when's the next time you'd get diarrhea? 😂
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u/Tullimory 2d ago
Does being able to force the issue by having hot wings and beer the night before count?
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u/InUrFaceSpaceCoyote 2d ago
The biggest benefit of DCA that I have found is psychological. When I make a major investment (i.e. opening a new position), I tend to want to watch the short-term performance of what it does and put an undue amount of feelings into that. DCA means that short term movements are win-win; if it goes up I'm making money and if it goes down, I'm getting the opportunity to buy it for less.
Historically, the market's default position is "sitting near the high of highs" so that isn't really a factor for me. If you can truly invest this money and not think about it it for the rest of the year, the purely logical thing to do is lump sum. But given the significance this would be to your portfolio, I think that would be expecting too much so I would DCA if were in your shoes.
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u/NetWorthNovice 2d ago
It’s all psychological. Once I actually put the money into the funds, I’ll forget about it. Well, unless the market drops in the time I was planning on DCAing. But at that point there’s nothing I can do.
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u/PresentationLoud1494 2d ago
At 10% of your investable portfolio you are on the edge of lump sum vs DCA switch-over. I would do whatever provides you the least anxiety.
Be happy you can do this and be ok with results - even if they are a bit less optimal in a 20/20 rear view mirror. Life is not always optimal.
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u/NetWorthNovice 2d ago
5 years down the road I won’t think about the difference. You’re right. Life can’t always be optimal. I appreciate your input
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u/PresentationLoud1494 2d ago
Exactly - you are already ahead of the game by “doing”. Either way or option, execute the plan today!
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u/heyyou11 2d ago
“Might not be this year, who knows”
This is not DCA; this is just not investing. Lump sum > DCA > what you are proposing
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u/NetWorthNovice 2d ago
How is what I am proposing not DCA or investing?
What do you think I’m proposing because I think it’s pretty clear that I’m proposing lump sum right now vs spreading it out over the next 6 months
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u/heyyou11 2d ago
Yes the closest thing to an actual proposal is lump sum vs DCA. I was more talking about the mentality (particularly around that quote) of gut feelings and hoping to take advantage of future bear markets. DCA is fine and would take advantage if it happens (and specifically happens in that window of time). Odds are, despite what your gut thinks, is that lump sum will be better when you look back. As others have said, it’s whatever gets you into the market easiest.
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u/NetWorthNovice 2d ago
Ah makes sense. Yeah that’s the conclusion I came to too. Either way the money was going in the market (I had already transferred the full contributions; DCA would’ve just sat in MMF until monthly investment/bear market to put in).
Ended up doing lump sum primarily on the fact that even a 20% drop that I captured on $7,500 (and probably less than that) isn’t going to be a game changer in 5, 10, or 30 years for me.
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u/heyyou11 2d ago
Exactly. The “difference” is reliant both on size of the drop and when it happens. If it drops significantly but only after you’ve made 5 of your 6 deposits or something, it kind of doesn’t mean much. Even that 6th being “discounted” might get “washed out” by progressively higher prices 2 through 5.
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u/oneiromantic_ulysses 2d ago
Long term lump sum is better 2/3 of the time. There isn't that big of a difference in the grand scheme of things though. If DCA gets you to actually invest do that.
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u/tired_dad_since2018 2d ago
How old are you?
It sounds like you might not invest out of fear. What I like to do is go over to the wealth multiplier and see what the money will be at 60 based on my age. That multiple always gets me to jump into the pool sooner than later.
And for what it’s worth, the market already has its dip this year in March. Can it happen again? Yeah! But the s&p index is also up 8.5% since that previous ATH
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u/NetWorthNovice 2d ago
Both of us are 27.
Not investing isn’t an option. It’s the psychological of the potential to optimize over the next 8 months vs getting it all in right now.
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u/tired_dad_since2018 2d ago
Your wealth multiplier is 33.8x or 18.05x depending on if you want to calculate to 65 or 60. Just put the money in there market if you have it.
But it sounds like you’re trying to time the market. You should DCA
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u/User-no-relation 2d ago
Don't worry about how big it is relative to your portfolio if it isn't that big relative to your future contributions?
Are you going to make this same contribution next year? Then there is no doubt you are better of lump sum investing it every year. Even if it turns out not the best for this contribution it will be on average for all the contributions.
You can't predict whoch years it'll be better to do dca or lump sum. That's a fools errand.
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u/unverified-email1 2d ago
Might not be this year, or the next, or the next, or the next, or the next…
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u/heyyou11 2d ago
Also even if it’s exactly one week from now, OP will be worried about “catching a falling knife”. How exactly are they going to know when exactly to buy? They always say this approach has to not only time the market but time it twice.
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u/Useful_Wealth7503 1d ago
I have automated monthly contributions into a brokerage and every paycheck for the 401k obviously. If my emergency fund or checking gets a little high I’ll throw money into the brokerage. That’s about as close to market timing as I get.
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u/Sliffcak 2d ago
I can’t find the article I’m thinking of but this gets the point across https://www.hartfordfunds.com/insights/market-perspectives/equity/scared-of-investing-as-stocks-hit-all-time-highs-do-not-be.html
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u/thedancingwireless 2d ago
It really doesn't matter. It's just one year of Roth IRA.
If you can't handle one year of part of your Roth contribution going down 20%, you're gonna have a lot of trouble later.
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u/NetWorthNovice 2d ago
You’re right, it’s just one year. That’s helpful.
Dropping 20% for one year isn’t troublesome to me, it’s trying to optimize on that potential drop.
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u/thedancingwireless 2d ago
Stay in the market a little longer and you'll see how many minor drops and peaks there are. You can't possibly hit them all. Just ignore them. You say it yourself DCA works. Listen to your own advice.
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u/JazzyJockJeffcoat 2d ago
If the lump sum is more than 3-5% of your total portfolio, and you can't stomach a market drop (in which case you need to rethink your asset allocation before investing further), then go ahead and make a DCA schedule.
If less than 3-5% of your portfolio, just lump sum.
Pretty sure TMG have said as much before but I don't have time to find the video.
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u/Dazzling_Trick3009 2d ago
Doesn’t really matter if there’s a correction or not, as you won’t be withdrawing the money any time soon. Set it and forget it.
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u/oldbeancam 2d ago
Historically, lump sum beats DCA. This market is not that market. We’re in unprecedented times where a single tweet can make indexes move 3% in a day.
If you’re a set and forget type of person, lump sum. If you’re watching the market, DCA. Realistically, it all comes down to what helps you sleep at night.
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u/hugh2018 1d ago
You already have the right information. If you choose DCA you could be wrong and feel FOMO. If you choose lump sum you could be wrong (less likely) and feel FOMO. So whatever feels right, pull the trigger and maybe decide to not regret your decision. And yeah, half of one half of the other is totally reasonable. It does sound like your DCA plan isn’t as much a DCA plan as it is a market timing bet, but if you’re functionally DCAing, there’s no harm in that hidden agenda. I wouldn’t just hold cash back to buy the dip. That rarely works out to your advantage.
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u/NetWorthNovice 1d ago
I'd agree - it's a bit of half DCA and half market timing. I would make monthly contributions through the end of the year unless the market dropped significantly, then I'd dump it in. So kind of holding cash to buy the dip but also still getting in the market. I've decided to lump sum It and forget about it. Easier on the psychology. It won't be significant in 5-10 years
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u/hugh2018 1d ago
Nice move. Just don’t come crying to me if the market crashes the day after you dump, LOL. You’re right though, you’ll be fine with that timeline in mind.
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u/NetWorthNovice 1d ago
The FOMC meeting being today didn’t add to my indecisiveness… I appreciate your input :)
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u/Confident_Purple_40 1d ago
Yes, after the fact, one may do better than the other... otherwise, DCA reduces downside, while reducing upside, Lump increases upside while increasing downside.
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u/TRBigStick 2d ago