Lump Sum vs DCA Backtest Calculator
Compare investing a windfall all at once against spreading it over months, and see the cost of sitting in cash while you wait.
How it works
Lump = P(1+r)^n · DCA = Σ (P/m)(1+cash)^k (1+r)^(n−k) for each queued slice
Because markets rise more often than they fall, putting money to work immediately usually beats spreading it out — the lump sum spends more time invested. Dollar-cost averaging keeps part of the money in lower-yielding cash while it waits, and that lag is the real cost, only partly offset by the cash yield. DCA still wins when the market falls during the spreading window, which is exactly why people use it: it is a hedge against bad timing and regret, not a return-maximizing strategy.
Worked example
A $60,000 windfall over a 10-year horizon, market at 8% and cash at 4%: investing it all at once grows to about $129,500, while spreading it over 12 months grows to roughly $126,300 — the lump sum wins by about $3,200 because it was fully invested sooner.
Frequently asked questions
Which usually wins, lump sum or DCA?
Historically lump sum wins about two-thirds of the time, because the money spends more days in a market that trends upward. DCA wins in the minority of windows where the market drops soon after you would have invested.
Then why do people dollar-cost average?
To limit regret and the risk of investing everything right before a drop. It trades a bit of expected return for a smoother experience and protection against terrible timing.
Does a higher cash yield change the answer?
It narrows the gap, because the money waiting to be invested earns more, but it rarely flips the result unless the market return is unusually low.
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Educational estimate using simplified assumptions — real returns, taxes and fees vary. Not financial advice.