My $50k Inheritance Blunder Reveals The Shocking Truth

Did you know that roughly 66% of the time, lump sum investing beats dollar cost averaging? Yeah, I didn’t either when I inherited $50,000 from my grandmother back in 2019. Talk about a learning experience!

I remember sitting at my kitchen table, staring at that check like it was gonna bite me. The weight of making the “right” investment decision felt crushing. Should I dump it all into the market at once or spread it out over time?

If you’re facing a similar dilemma – maybe you got a bonus, inheritance, or finally saved up a chunk of change – this whole dollar cost averaging versus lump sum debate probably keeps you up at night too. Let me share what I learned the hard way, plus what the actual data says about which strategy typically wins.

What Dollar Cost Averaging Really Means (Beyond the Fancy Term)

Dollar cost averaging is basically the investment world’s version of not putting all your eggs in one basket – but with timing instead of diversification. You take your money and invest equal amounts at regular intervals.

Like when I started investing that inheritance, I decided to put in $4,166 every month for a year. Simple math, right? $50,000 divided by 12 months.

The beauty of this approach was that some months I bought when prices were high, other months when they was low. It averaged out my purchase price over time. Kinda like how you don’t care about gas prices as much when you fill up every week versus buying 52 weeks worth of gas all at once!

Lump Sum Investing: The All-In Approach

Lump sum investing is exactly what it sounds like – you take your entire pile of cash and invest it immediately. No waiting around. No monthly deposits.

My buddy Jake did this with his $30,000 bonus last year. Just logged into Vanguard, bought his index funds, and called it a day. The whole process took him maybe 10 minutes.

I’ll admit, watching him do it made me jealous. While I was still slowly trickling money in each month, his investments were already fully working for him. But was he right to go all-in?

The Math Behind My Decision (Spoiler: I Chose Wrong)

Here’s where things get interesting. Vanguard did a study that looked at rolling 10-year periods from 1926 to 2015.

They found that lump sum investing beat dollar cost averaging about 66% of the time. Not 51% or 55% – a full two-thirds! The average outperformance was around 2.3%.

Why does lump sum usually win? Time in the market beats timing the market. When you dollar cost average, part of your money sits in cash earning basically nothing while it waits its turn to be invested. Meanwhile, the market historically goes up over time, so that waiting usually costs you.

When Dollar Cost Averaging Actually Makes Sense

Okay, so if lump sum wins most of the time, why did I choose dollar cost averaging? Honestly, I was scared. The market felt “too high” in 2019 (boy, was I wrong about that one).

But here’s when DCA actually does make sense:

• You literally can’t sleep at night thinking about investing everything at once
• You’re investing in something super volatile, like crypto or individual stocks
• You’re naturally getting money in chunks, like from your paycheck
• The market’s in a clear downtrend (though good luck timing that correctly)

For me, the peace of mind was worth potentially giving up some returns. I slept better knowing I wasn’t going “all in” at what might be a market peak. Was it mathematically optimal? Nope. But investing is as much about psychology as it is about math.

My Real-World Results (And What I’d Do Differently)

So what happened with my grandmother’s money? I started my dollar cost averaging in January 2019 and finished in December. The S&P 500 gained about 31% that year!

If I’d done lump sum investing in January, I would’ve captured all those gains on the full $50,000. Instead, my average purchase price was higher since the market kept going up while I slowly invested. My actual return ended up being around 16%.

That 15% difference? It cost me about $7,500 in missed gains. Ouch. Still made money, but man, that stings when you do the math.

The Strategy I Use Now

These days, I’ve switched to mostly lump sum investing when I get chunks of money. But I’ve developed a hybrid approach that helps me sleep at night:

For amounts under $10,000, I go lump sum every time. No hesitation. Just get it in the market. For larger amounts, I’ll sometimes do a “accelerated DCA” – investing over 3-4 months instead of 12.

I also keep my regular 401k contributions going, which is technically dollar cost averaging from my paycheck. That automatic investing every two weeks has built up nicely over the years without me having to think about it.

Your Money, Your Choice (But Here’s What I’d Tell My Kids)

Look, at the end of the day, both strategies can work. The most important thing isn’t whether you choose dollar cost averaging or lump sum – it’s that you actually invest instead of letting money sit in your checking account earning 0.01%.

If I was giving advice to my kids (or my younger self), I’d say this: If you can handle the emotional rollercoaster, go lump sum. The math is on your side. But if you’re gonna lose sleep or panic sell at the first dip, then dollar cost average your way in.

The worst investment strategy is the one you can’t stick with. And hey, even if you choose “wrong” like I did, you’re still gonna be way better off than someone who never invests at all.

Want to dive deeper into investment strategies and avoid the mistakes I made? Check out other practical guides at Plan Wealth where we break down complex financial topics into bite-sized, actionable advice. Trust me, your future self will thank you for taking the time to learn this stuff now!