Splitting a year-end bonus you already have into 12 monthly installments is probably just paying for peace of mind.

Let’s look at the data first. Vanguard’s 2023 study, “Cost averaging: Invest now or temporarily hold your cash?”, compared one-year outcomes in global equities (MSCI World, 1976–2022):
· Investing a lump sum outperformed investing it over three months about 68% of the time;
· The longer the period over which investments were spread (3, 6, or 12 months), the more often lump-sum investing came out ahead, with results ranging from 61.6% to 73.7% across different markets;
· The real advantage of spreading out investments came in the worst 5% of market outcomes: an all-equity portfolio did about 3.6% better.

A lot of people treat “dollar-cost averaging” and “investing in installments” as the same thing. With salary-based investing, you don’t really have a choice: the money comes in each month, and you invest it as soon as it arrives. In that sense, you’re investing each installment as a lump sum. But if you already have a sum of cash on hand and still split it into 12 parts, some of your money is left waiting on the sidelines, giving up the risk premium for that period.

So does investing in installments serve no purpose? Not at all. It can help ease the regret of “buying just before a big drop.” Vanguard itself acknowledges that for people who are especially afraid of losses and might sell everything as soon as the market falls, investing in installments is better than staying in cash.

So the real question to ask yourself is: Is that peace of mind worth the 68%?

Hey, what would you do with the money you have on hand—invest it all at once or spread it out? Tell us why in the comments.
(Personal observation, based on publicly available research. Past performance is not indicative of future results and this is not investment advice.)

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