Is it Better to Wade in or Cannonball: Quantifying the Trade-offs of Dollar-Cost Averaging

Statistically speaking, investing immediately tends to yield higher returns than dollar‑cost averaging. So, why do so many investors still choose to dollar‑cost average?

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Key Takeaways

Compared to US large-caps, the balance between cost and benefit for dollar‑cost averaging is more favorable in US small-caps and emerging markets, but less favorable in bonds.

The excess CAPE yield—a measure of the market’s valuation relative to long-term, inflation-adjusted earnings and current bond yields—is useful for determining whether dollar‑cost averaging makes sense.

Statistically speaking, investing immediately tends to yield higher returns than dollar‑cost averaging. So, why do so many investors still choose to dollar‑cost average?

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Is it Better to Wade in or Cannonball: Quantifying the Trade-offs of Dollar-Cost Averaging

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Is it Better to Wade in or Cannonball: Quantifying the Trade-offs of Dollar-Cost Averaging

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