Coming into a large windfall of money (selling a business, inheritance, bonus) triggers a massive psychological dilemma: If I invest it all today and the market crashes tomorrow, I'll be devastated.
The Emotional Approach: DCA
Dollar Cost Averaging dictates splitting that $100,000 into 10 chunks of $10,000, and investing it over 10 months. This protects your psychology against a sudden crash.
The Mathematical Approach: Lump Sum
Vanguard ran a massive study on historic decades of data. The result? Lump Sum investing beats DCA roughly 68% of the time.
Why? Because stock markets generally drift upwards over time. By holding cash on the sidelines for 10 months, you are missing out on 10 months of expected upward drift and dividends.
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