- Investing at once did better than spreading over a year about 2 times out of 3, because markets rise more often than they fall.
- Spreading means paying for peace of mind: a little return on average, and the longer the spread, the higher the cost.
- If you spread: a plan fixed in advance, short and automatic, never "waiting for a fall".
What the numbers say
Over almost a century of data, investing a sum at once did better than spreading it over 12 months about two times out of three. The Vanguard study compares both methods over thousands of 10-year periods, in the United States, the United Kingdom and Australia: the result is almost identical in all three countries.
The reason is simple: equities and bonds have returned more than money in an account. Every month part of the sum waits, it misses that return. The longer the wait, the wider the gap: against spreading over 36 months, investing at once did better about nine times out of ten.
The study in detail, country by country
| Country and period | At once did better | Average gap after 10 years |
|---|---|---|
| United States, 1926-2011 | 67% of periods | +2.3% |
| United Kingdom, 1976-2011 | 67% of periods | +2.2% |
| Australia, 1984-2011 | 66% of periods | +1.3% |
Vanguard, 2012: portfolio of 60% equities and 40% bonds, spread over 12 months, rolling 10-year periods. With 100% equities, the result is similar (66% in the United States).
What spreading costs you
Spreading costs, on average, the return the money misses while waiting in an account. Example: 50'000 francs spread over 12 months cost about 1'000 francs on average. Set your own sum and duration:
Average cost of spreading:
ViaVest calculation: average return of 5% a year once invested, 0.5% in the account while waiting. This is an average: a fall right after a lump-sum investment can cost far more, a rise can earn far more.
This is an average. In about one period out of three, spreading did better, sometimes clearly: when a sharp fall came just after a lump-sum investment.
What spreading gives you
Spreading does not earn more, but it reduces the risk of investing everything just before a fall. In the study, 12-month periods ending in a loss were fewer with spreading, and the losses smaller. If the fear of bad timing would make you give up, or sell at the first dip, spreading is a good compromise: an investment you stick with beats an ideal one you abandon.
If you spread, do it properly
- Fix the plan in advance: the amount, the day of the month, the number of instalments. Then do not change it.
- Keep it short: 6 to 12 months. Beyond that, the average cost grows without much more protection.
- Automate it: a savings plan at your broker buys for you, without you having to decide every month.
- Keep the waiting money risk-free: the part that waits stays in an account in francs, available.
"I am waiting for a fall before investing" is not spreading, it is a bet on the market. The fall may never bring prices back to where you started, while the market rises without you.
Going further
Investing every month from your salary is something else. When money arrives every month, investing it as it comes remains the right method: no sum is waiting. The question only concerns money that is already available.
A large sum is first a question of allocation. If the idea of investing everything at once really worries you, your share of equities may be too high for you. A more cautious split, invested straight away, is better: see asset allocation.
Think 3a and buy-in before the brokerage account. A bonus or an inheritance can first fill your 3a, or go into a pension fund buy-in: every franc there is deducted from your taxable income. See the pension fund buy-in.
Your split over 25 yearsEquities, bonds and cash: 1'500 simulated paths.
Open the calculatorYour next step
To do, at your own pace:
Path “Investing: the right decisions” · step 1 of 6
Frequently asked questions
Is it better to invest a lump sum or in instalments?
In the past, investing a sum all at once did better than spreading it over 12 months about 2 times out of 3, in the United States, the United Kingdom and Australia (Vanguard, 2012). Spreading, on the other hand, reduces the risk of regretting an investment made just before a fall.
How much does spreading cost?
On average, the return the money misses while waiting in an account. In the Vanguard study, spreading over 12 months ended on average about 2% lower after 10 years. The longer the spread, the higher the cost: over 36 months, it lost about 9 times out of 10.
Should I wait for a fall before investing?
No. Waiting for a fall means trying to predict the market, which almost nobody manages. While you wait, the market can rise, and the hoped-for fall may never bring it back to where you started.
Is investing every month from my salary the same thing?
No. When money arrives every month, investing it as it comes is the right method: no sum is waiting. The "all at once or gradually" question only concerns money that is already available: a bonus, an inheritance, a sale, accumulated savings.
Where should I keep the money while spreading?
In a savings account or an interest-bearing account, in francs, available straight away. The idea is to take no risk on the part that is waiting, since its only role is to be invested soon.
Sources: Vanguard Research, “Dollar-cost averaging just means taking risk later”, July 2012 (United States 1926-2011, United Kingdom 1976-2011, Australia 1984-2011, rolling 10-year periods) ; ViaVest calculations for the calculator.