Lump Sum vs. Dollar-Cost Averaging for Your Roth IRA
Should you invest your full $7,500 contribution on January 2nd or dollar-cost average monthly? Here is what historical data shows.
What Does Historical Market Data Show?
Vanguard and Morningstar studies evaluating rolling historical market periods show that lump-sum investing outperforms dollar-cost averaging (DCA) approximately 68% of the time.
Why Lump-Sum Tends to Win
Markets trend upward over long horizons. By investing the full $7,500 on the first trading day of the year, your capital enjoys maximum exposure to upward market movement and dividend yields.
However, if investing a lump sum causes anxiety or prevents you from taking action, dollar-cost averaging ($625/month) remains an outstanding behavioral discipline that eliminates regret.
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