Dollar-cost averaging just means taking risk later
July 5, 2012
This Vanguard research compares the historical performance of dollar-cost averaging with lump-sum investing in three markets: the United States, the United Kingdom, and Australia. The study finds that on average, the lump-sum approach would have outperformed dollar-cost averaging about two thirds of the time, even when returns are adjusted for the higher volatility of a stock/bond portfolio versus cash investments. Dollar-cost averaging minimizes downside risk, but introduces other risks including the potential for lower returns due to a temporary portfolio allocation to cash.
- All investments are subject to risk.
- Past performance is no guarantee of future returns.
- Dollar-cost averaging does not guarantee that your investments will make a profit, nor does it protect you against losses when stock or bond prices are falling.
More on Asset allocation