Lump Sum vs Dollar-Cost Averaging Calculator
Got a year-end bonus, an inheritance, or a tax refund and wondering whether to invest the lot today or feed it in monthly? This calculator compares the projected growth of a one-time lump sum against the same amount dollar-cost averaged into a Roth IRA, 401(k), or brokerage account, and shows the gap once you factor in the assumed market return.
How is this calculated?
The lump sum grows at FV = P × (1 + r)^t. The DCA path divides the same total into n equal monthly contributions, each compounded for the remaining time using the future value of an ordinary annuity formula. Because U.S. equity markets are up about two-thirds of years, lump-sum investing wins on average — but DCA delivers a better outcome in falling markets and reduces regret risk. Returns are gross of fund expense ratios; tax treatment depends on the account wrapper.
Frequently Asked Questions
Which approach usually wins?
Vanguard research shows lump-sum investing beats dollar-cost averaging in roughly two-thirds of historical 12-month windows because U.S. markets trend upward over long periods. Getting money invested sooner captures more of that drift. DCA wins when markets fall during the deployment window.
What is dollar-cost averaging?
DCA means investing a fixed dollar amount at regular intervals regardless of share price. When prices fall your fixed contribution buys more shares; when they rise, fewer. The mathematical effect is a lower average cost per share than the simple average price, but it doesn't beat lump-sum investing on average.
How does this work inside a Roth IRA?
You can contribute the full annual limit ($7,000 in 2026, $8,000 if 50+) as a lump sum at the start of the tax year or as monthly contributions throughout. Both fit the same annual cap and grow tax-free. The choice is purely about timing risk, not tax — IRS rules apply equally either way.
When does dollar-cost averaging make most sense?
When valuations look stretched, when you'd lose sleep watching a one-day market drop hit a freshly-deployed lump sum, or when the money is arriving over time anyway (like 401(k) contributions from each paycheck). The behavioral edge matters — the best plan is the one you'll stick with.
Last updated: May 2026 · Rates sourced from IRS