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Should You Invest A Lump Sum Or Dollar Cost Average?


You just inherited a windfall. 

Or perhaps you’ve stashed cash in a savings account, waiting for a chance to invest it. 

Should you drop the money into stocks and bonds all at once? 

Or should you space out your investments over time?

This is one of the most common financial questions I get. 

Image by Pixabay

Here’s my answer

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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4 Responses

  1. Shawn says:

    Hi Andrew,

    I’ve decided to open an online brokerage account with TD Waterhouse as I already am with the bank.

    What kind of brokerage account do you recommend I open for someone who will primarily deal with ETF’s and Bonds in the US, Canadian and International markets?

    Direct Trading Accounts (Cash Account, Margin Account etc.) or Registered Trading Accounts (TFSA account)?

    Thank you for your insight
    – Shawn

  2. Aaron says:

    Hi Andrew,

    As per your article I have saved up a lump sum USD 100k over time but have been keeping it in cash or fixed deposits. I am 38, married and based in Dubai and originally from Ireland and didn’t really trust or understand most of the advice I was getting here but that has meant I have done nothing with it to put it to work, I know I need to invest it but I just seem to get bogged down in info and end up doing nothing.

    I could do with your advice on how to get started. I plan to move back to Ireland in 2 years so I am also trying to factor that into my thinking from a tax perspective. My questions would be as follows:

    My initial thoughts are to
    A. Open an offshore account with citi jersey and just keep a portion there for a rainy day, say USD 20k. Do you have any preference for offshore accounts.
    B. Open an interactive brokers account from Dubai. Again would you have a preference for a brokerage account. Do they all mainly have minimum balance requirements, this one is usd10k.
    C. Try and come up with a split of funds to invest the USD 80k in for the future and also add to it every few months. Would you have any advice on where to start with this portfolio, also I was trying to factor in that if I move home maybe income generating funds won’t make sense if I am paying tax at the higher tax rate? The advisors here were advising on an offshore portfolio bond.

    Any advice would be really appreciated.

  3. Ben says:

    Hi Andrew,

    I have $65,000 CND to invest in my TFSA and RRSPs. I have not invested in my chosen indexes (VUN, XEF or VCE) because the stock market is reaching record highs. Given the crazy stock market prices and that all eyes are on the potential Trump tax reform bill, should I invest a lump sum into each Index ($20,000 each) or dollar cost average it? Maybe $1,000 per month?

  4. Amanda says:

    Hi Andrew,

    Thank you so much for sharing your knowledge through this blog and your book. After reading your works, I have been thoroughly convinced that I should start investing now and that the way to go is index funds.

    My question is this. In the blog post above, you mention that lump sum investing has greater yield than dollar cost averaging. However, how does this work for someone without a lump sum to invest like myself? As a fresh graduate with my first ever permanent job, I am able to set aside $500 a month for investing after accounting for expenses, etc.

    Would you advice someone like myself to invest with a regular savings plan like POSB Invest Saver, contributing $500 a month to purchase the Straits Times Index and Singapore bond index, incurring a fee of 1%? Or is it better to stockpile this amount and invest $6000 at the end of one year and go with DBS Vickers with a fee of $25? I realise that higher fees would mean I lose out on compounding interest but my initial thoughts were that it would be better to start investing right away rather than waiting and stockpiling.

    Once again, thank you for sharing your knowledge and I hope you could share your thoughts on this matter.

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