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DCA vs Lump Sum

If you have a sum of money, should you invest it all at once or spread it out monthly? Under a fixed-return assumption, lump sum almost always wins mathematically because the full amount compounds for longer. But market volatility and psychology matter too.

Inputs

The same amount, invested two different ways.

Both strategies use the same return for a like-for-like comparison.

Assumptions
  • Lump sum: invest NT$1.2M at month 0.
  • Dollar-cost averaging (DCA): contribute NT$10K each month for 120 months.
  • Both compound at 5% annualized.
Results (after 10 years)
Lump sum
NT$1.98M
DCA
NT$1.55M
Balance difference
Lump sum ahead by NT$423.6K(+27.3%)

Under a steadily rising market, lump sum usually wins because the full amount compounds for longer. Real markets fluctuate, so actual outcomes can differ.

Calculation: lump sum = NT$1.2M × (1 + monthly return)^(months); DCA adds the monthly contribution and compounds monthly. Returns are held constant; trading commissions and taxes are not included.

Balance growth

Vanguard's 2012 research: in ~67% of historical periods, lump sum outperformed dollar-cost averaging. But DCA's psychological advantage (easier to stick with during downturns) is real. A balanced approach: invest 50–70% upfront, spread the rest over 6–12 months.

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