Lump sum investing versus dollar-cost averaging

The Australian market has been experiencing persisting volatility, causing significant apprehension and concern to investors. Should we wait and hold off investing? Should we dollar-cost average (DCA) into the market?

Our advice is to focus on your financial objectives for your money and ignore short term volatility. Being fully in the market as soon as possible with a diversified portfolio tailored to your acceptable level of risk for the potential earning opportunity, in our opinion is an appropriate course of action. The risk to investors sitting on sidelines is that they get in too late and miss the upside from the next bull run.

Research* showed that generally, lump sum investing (LSI) outperformed the dollar cost averaging (DCA) approach. If an investor is satisfied with their asset allocation and comfortable with the risk/return strategy, the prudent course of action was to immediately gain exposure to the markets. If the investor is primarily concerned with minimizing downside risk and potential feelings of regret, then DCA may be more appropriate.


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