WebWord

“Periodic investment of a fixed dollar amount, as in a particular stock or fund or in the market as a whole, on the belief that the average value of the investment will rise over time and that it is not possible to foresee the intermediate highs and lows.” (reference)

However, the question becomes, should you invest once per year (lump) or once per month?

You might think, or assume, that the once per year approach is inferior to the once per month approach. Stated another way, you might think that you can smooth out the bumps by investing more frequently but with smaller amounts.

Well, it seems that lump sump investing is often superior. That runs against my assumptions and the previous “research” I’ve seen. However, just run the numbers and you’ll see that lump sum (per year) wins 2/3 of the time.

Shooting from the hip, I’d say that this is because the stock market outperforms bank savings accounts over the course of a year. It is only when you throw a crash at the market that the lump sum fails.

This entry was posted on Tuesday, September 13th, 2005 at 1:03 pm and is filed under Usability. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.