Unit 3 · Level 3 · DCA & lump sums
Paper vs person
You have €12,000 to invest. Invest it all today, or drip €1,000 a month for a year? Studies (including a well-known Vanguard one) found lump sum beat dollar-cost averaging roughly two-thirds of the time. Markets rise more often than they fall, so waiting usually costs you. And yet DCA keeps winning in real life. Paper and people are different animals.
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What you get asked
Historically, investing a lump sum immediately beat spreading it out roughly how often?
Roughly two-thirds, because markets trend upward more often than not, so money on the sidelines usually misses growth. The Trading course reached the same verdict; the evidence doesn't change per course.
DCA's real advantage is ___ rather than mathematical: it keeps nervous investors invested.
A person too scared to invest €12,000 today but happy to drip €1,000 monthly ends up invested either way. The 'suboptimal' plan you follow beats the optimal one you flee.
Match each situation to the honest reading
Note the third one: most people never face the lump-sum question at all. Investing part of each paycheck IS dollar-cost averaging.
Why does DCA psychologically protect you when markets fall right after you start?
If prices drop, your next instalments buy more shares per euro. The crash becomes 'shares on sale' instead of 'I picked the worst day of the decade'.
What's the fair one-line summary of the debate?
Pick the method you'll actually follow through a scary month. Both are honest strategies; sitting in cash 'waiting for clarity' is the one that reliably loses. 🐜
The rest of this unit
How money gets INTO the plan: drip by drip, all at once, and through the storms.