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In Defense of Dollar-Cost Averaging

Although lump-sum investors may amass more over time, DCA might be more realistic from a logistical and psychological standpoint.

Christine Benz 18.04.2014

Dollar-cost-averaging--the notion of moving the money into securities slowly over time rather than all at once--is close to dogma in financial-planning circles.

But when you look closely at the data, dollar-cost averaging doesn't compare favorably with the strategy of investing a lump sum and letting it ride. The simple reason is that stocks generally trend upward over time. Given that, you're generally better off investing the largest amount you can as soon as you can rather than dribbling the money into the market slowly during a period of months and years.

Yet as well-grounded as that research is, I'd argue that dollar-cost averaging is still a sound strategy for most investors, mainly because of the following logistical and behavioral factors that accompany the two approaches.

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About Author

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.

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