alt
Welcome
  • Funds

    Products

    • Mutual Funds
    • ETFs
    • SmartRetirement Funds
    • 529 Portfolios
    • Money Market Funds
    • Commingled Funds
    • Featured Funds

    Asset Class Capabilities

    • Fixed Income
    • Equity
    • Multi-Asset Solutions
    • Alternatives
    • Global Liquidity
  • Investment Strategies

    Investment Approach

    • ETF Investing
    • Model Portfolios
    • Separately Managed Accounts
    • Sustainable Investing
    • Variable Insurance Portfolios
    • Commingled Pension Trust Funds

    College Planning

    • 529 College Savings Plan
    • College Planning Essentials

    Defined Contribution

    • Retirement Solutions
    • Target Date Strategies
    • Full-service 401(k) Solution
    • Retirement Income
  • Insights

    Market Insights

    • Market Insights Overview
    • Guide to the Markets
    • Quarterly Economic & Market Update
    • Guide to Alternatives
    • Market Updates
    • On the Minds of Investors
    • Principles for Successful Long-Term Investing
    • Weekly Market Recap

    Portfolio Insights

    • Portfolio Insights Overview
    • Asset Class Views
    • Equity
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Monthly Strategy Report
    • Sustainable Investing

    Retirement Insights

    • Retirement Insights Overview
    • Guide to Retirement
    • Principles for a Successful Retirement
    • Defined Contribution Insights
  • Tools

    Portfolio Construction

    • Portfolio Construction Tools Overview
    • Portfolio Analysis
    • Model Portfolios
    • Investment Comparison
    • Bond Ladder Illustrator

    Defined Contribution

    • Retirement Plan Tools & Resources Overview
    • Target Date Compass®
    • Core Menu Evaluator℠
    • Price Smart℠
  • Resources
    • Account Service Forms
    • Tax Planning
    • News & Fund Announcements
    • Insights App
    • Events
    • Library
  • About Us
  • Contact Us
Skip to main content
  • Account Login
    • Login
    • Register
  • Welcome
    • My Collections
    • Logout
  • Role
  • Country
  • Shareholder Login
Search
Menu
CLOSE
Search
You are about to leave the site Close
J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
CONTINUE Go Back
  1. Home
  2. Insights
  3. Market Insights
  4. Market Updates
  5. On the Minds of Investors
  6. Does DCA provide better returns than a lump sum strategy

  • Share
  • LinkedIn Twitter Facebook Line
  • Print
  • Actions
  • LinkedIn Twitter Facebook Line
    Print

Does DCA provide better returns than a lump sum strategy?

10/09/2020

Jordan Jackson

Katherine Roy

Even with periods of sideways markets, the ability for the index to grind higher has meant more reward for those using a lump sum investing strategy over a dollar cost averaging strategy.

Jordan Jackson

Listen to On the Minds of Investors

10/09/2020

This blog is the second in a two part series that explores how retirement plan participants and cautious investors can leverage dollar cost averaging, while also discussing the downsides when compared to a lump sum investing strategy. There is no shortage of pieces available that argue both sides of dollar cost averaging however, we believe it is critically important for retirement participants to systematically contribute a portion of their paycheck to their retirement, regardless of market conditions, to reach their desired outcomes. Though investors with cash on the sidelines are more likely to achieve better returns by putting their money into the market all at once, rather than dollar cost averaging.

Definitions

Dollar cost averaging (DCA): Investing predetermined, fixed dollar amounts over a period of time.
Lump sum investing (LSI): Investing a sum of capital immediately upon receipt. Lump sums can come from several different sources—a pension payout, inheritance, the sale of property or a business.

In our previous post we highlight the benefits of dollar cost averaging as a useful investment strategy for retirement participants and for investors worried about volatility in the near term. But for investors who’ve experienced a windfall of cash and are considering what to do with it, history suggests you’re better off putting your money into the market and letting it ride, rather than tip-toeing in.

It is typically during periods of uncertainty when the idea of DCA is emphasized to get people to move from cash to investments – and while this is better than continuing to stay in cash, it is addressing the behavioral issue, but is not generally the most optimal strategy. Using what we know from history, we can help clients overcome the anxiety tied to market volatility and get money invested.

Markets spend more time rising than falling. Even with periods of sideways markets, the ability for the index to grind higher has meant more reward to those using LSI over DCA. In fact, 66% of all monthly S&P 500 returns going back to 1990 have been positive1--allowing LSI to consistently outperform. As highlighted, if we compare DCA and LSI on a rolling one-, three- and five-year basis over the past 20 years, lump sum investing has outperformed dollar cost averaging over 70% of the time over each rolling period.

While DCA may remove the emotion from investing, not only has LSI been proven to consistently outperform, but investors should also consider that in the current low-interest rate regime, cash has a real negative yield, leaving them penalized for holding large amounts of cash while they dollar-cost average. Moreover, even though DCA has been shown to provide a buffer in downward trending markets, you have to start the strategy at the right time to reap its benefits.

In short, making decisions on what we know over what we’re scared of, has shown to provide better outcomes for investors. Therefore, for those investors looking for more predictable better investment returns over the long run, understand that volatility is normal and know that cash will not earn anything; lump sum investing is a superior investment strategy.

Consistency of outperformance using LSI

Percent of rolling periods LSI outperforms DCA


Bar chart showing the Percent of rolling periods LSI outperforms DCA

Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management. Rolling returns assumes over the first 10 months, 10 payments of $1,000 are made at the beginning of each month for each rolling period, and grows with the market for the remainder of the period. Data as of September 30, 2020.

1Using S&P 500 total return index between September 1990 and September 2020.

0903c02a82a207b0

EXPLORE MORE

On the Minds of Investors

What investment questions are on the minds of investors? Explore the questions investors ask frequently and find answers at J.P. Morgan Asset Management.

Read more

Guide to the Markets

The J.P. Morgan Guide to the Markets illustrates a comprehensive array of market and economic histories, trends and statistics through clear charts and graphs.

Read more

Asset Class Views

Get quarterly commentary and in-depth analysis on equities, fixed income and other asset classes, written by our senior investment teams.

Read more
Retirement Defined Contribution Markets
J.P. Morgan Asset Management

  • Capital Gains Distributions
  • eDelivery
  • Fund Documents
  • Glossary
  • Help
  • How to invest
  • Important Links
  • Mutual Fund Fee Calculator
  • Accessibility
  • Investment stewardship
  • Privacy
  • Proxy Information
  • Senior Officer Fee Summary
  • SIMPLE IRAs
  • Site disclaimer
  • Terms of use
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase
Opens LinkedIn site in new window Opens Youtube site in new window Opens Twitter site in new window

This website is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that take into account all of the particular facts and circumstances of an investor's own situation.

 

Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.

 

INFORMATION REGARDING MUTUAL FUNDS/ETF:

 

Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund or ETF before investing. The summary and full prospectuses contain this and other information about the mutual fund or ETF and should be read carefully before investing. To obtain a prospectus for Mutual Funds: Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 or download it from this site. Exchange Traded Funds: Call 1-844-4JPM-ETF or download it from this site.

 

J.P. Morgan Funds and J.P. Morgan ETFs are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA  FINRA's BrokerCheck

 

INFORMATION REGARDING COMMINGLED FUNDS:

 

For additional information regarding the Commingled Pension Trust Funds of JPMorgan Chase Bank, N.A., please contact your J.P. Morgan Asset Management representative.

 

The Commingled Pension Trust Funds of JPMorgan Chase Bank N.A. are collective trust funds established and maintained by JPMorgan Chase Bank, N.A. under a declaration of trust. The funds are not required to file a prospectus or registration statement with the SEC, and accordingly, neither is available. The funds are available only to certain qualified retirement plans and governmental plans and is not offered to the general public. Units of the funds are not bank deposits and are not insured or guaranteed by any bank, government entity, the FDIC or any other type of deposit insurance. You should carefully consider the investment objectives, risk, charges, and expenses of the fund before investing.

 

INFORMATION FOR ALL SITE USERS:

 

J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

 

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

 

Telephone calls and electronic communications may be monitored and/or recorded.
Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://www.jpmorgan.com/privacy.

 

If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance. 

 

Copyright © 2021 JPMorgan Chase & Co., All rights reserved