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How to invest a lump sum of money

Investing a lump sum of money comes down to the question of your tolerance for risk.


  • Dollar-cost averaging spreads the risk of investing.
  • Lump-sum investing gives your investments exposure to the markets sooner.
  • Your emotions can play a role in the strategy you select.

The lump-sum approach vs. dollar-cost averaging

Suppose you received a windfall. Someone gave you a gift or you inherited a lot of money. Maybe you hit the lottery jackpot or got a huge bonus.

Here's the question you face: Should you invest it all right away or in smaller increments over time, a strategy known as dollar-cost averaging?

All at once ...

Investing all of your money at the same time is advantageous because:

  • You'll gain exposure to the markets as soon as possible.
  • Historical market trends indicate the returns of stocks and bonds exceed returns of cash investments and bonds.
  • When markets are going up, putting your money to work right away takes full advantage of market growth.

… Or slow and steady

Dollar-cost averaging may be for you if you want to:

  • Minimize the downside risk of a huge investment.
  • Take advantage of the market's natural volatility by lowering the average price you pay for shares.
  • Avoid feelings of regret if the market takes a downturn after you invest.

What the research says

Our research indicates that it's prudent to invest a lump sum immediately.

Markets going up …

If markets are trending upward, it makes sense to implement a strategic asset allocation as soon as you can.

History shows that investors taking such a risk have been rewarded with positive returns over the long run that should be greater than the expected return of cash investments.

… But what if they go down?

You may be thinking: What if I invest this huge sum of money at once and the market takes a downturn soon after? What happens to my returns then?

If that's your mindset, dollar-cost averaging may be the strategy for you. In other words, you don't want to have any regrets and you want to minimize the downside risk.

Weigh your emotionally based concerns carefully against what the research shows:

  • The lower expected long-term returns of cash compared with stocks and bonds.
  • Delaying investment is itself a form of market-timing, something few investors succeed at.

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Dollar-cost averaging


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Cash investment

Very short-term investments—such as money market instruments, CDs (certificates of deposit), and Treasury bills—that mature in less than one year. Also known as cash reserves.

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The degree to which the value of an investment (or an entire market) fluctuates. The greater the volatility, the greater the difference between the investment's (or market's) high and low prices and the faster those fluctuations occur.

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A single unit of ownership in a mutual fund or an ETF (exchange-traded fund) or, for stocks, a corporation.

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Asset allocation


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An investment strategy based on predicting market trends. The goal is to anticipate trends, buying before the market goes up and selling before the market goes down.