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How to Invest a Windfall of Cash: Dollar Cost Averaging vs. Lump Sum Investing

March 8, 2019

This week’s Money Guy Episode is inspired by an article written by Nick Maggiulli Of Dollars and Data on February 19, 2019 titled “How to Invest a Lump Sum” that talks about what you should do if you suddenly experience a windfall of money.

Maybe you sold a big-ticket item, received an inheritance, sold a business, sold some real estate, or the scratch-off finally paid off. What do you do? And how do you invest your newfound earnings?

As it turns out, we also did a show on this very topic less than a year ago where we discussed whether or not you should take a lump sum or a dollar cost average approach to your investing. So, this week’s episode is a reboot that allows us to apply the same principles to the scenarios laid out by Nick Maggiulli.

Join us for this week’s episode of The Money Guy Show as we build a bridge between the analytics cited in Maggiulli’s article and the financial behaviors that impact your bottom line.

Here’s What You’ll Find Out in this Episode:

  • The data assumptions used to determine whether lump sum investing or dollar cost investing performs better over time
  • Why lump sum investing tends to outperform dollar cost averaging
  • When dollar cost averaging outperforms lump sum investing
  • The advantages of dollar cost averaging and the role it plays in your investment strategy
  • Why investors aren’t particularly great at
  • How the amount of your windfall does inform the potential impacts (positive and negative) of lump sum investing vs. dollar cost averaging and how you should approach investing a large sum of money
  • Why it’s important to view historical investing performance over longer time horizons, not just in short 12-month cycles
  • What the historical data and behavioral data confirms: there is a sweet spot for leveraging both dollar cost averaging and lump sum investing

Resources Mentioned in This Episode         

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