Level 0 Investing & ETF Basics · Part 7/16

Savings Plan or Lump Sum: What Historical Data Shows

By Alexander Bock, founder and data analyst

A large sum can be invested in two ways: all at once, or spread over several months via a savings plan.

Two lines: 24,000 euros invested at once versus 1,000 euros a month over two years, each over ten years
€24,000 at a steady 6% a year: (1) invested at once, (2) spread over 24 months. With steadily rising prices, the lump sum comes out ahead because the money is invested for longer. What the graphic does not show: spreading lowers the risk of investing the whole sum shortly before a crash.
  • Lump sum: in historical comparisons it came out ahead on average, because stock markets rose more often than they fell over long periods. The spread-out money was invested for less time.
  • Spreading it out (cost averaging): it reduces the risk of investing the entire sum right before a decline. It narrows the range of outcomes but does not raise the expected return.

Both can be compared with your own figures in the savings-plan calculator: a monthly rate over a period against a one-off starting amount.

In Context

Historical averages say nothing about which route does better in an individual case. Which one fits depends on how a possible decline right after investing could be absorbed.

Three Paths Compared

€12,000 at once against €1,000 at the start of each month, valued after twelve months, without costs:

Savings Plan or Lump Sum: What Historical Data Shows
Market pathLump sumSavings plan
steady +0.5% a month€12,740€12,397
−15% in the first month, then +1.35% a month€11,821€12,917
steady −1% a month€10,637€11,248

When the market rises, the lump sum is ahead because all of the money grows from the start. When it falls shortly after the start, the savings plan buys more cheaply and ends with more. In the second case, it even ends above the amount paid in, although the market closes below its starting level. A widely cited Vanguard study from 2012 covered the US, the UK and Australia. It found that the lump sum came out ahead in about two thirds of the periods examined.

What the Calculation Leaves Out

  • Interest on the waiting money: with a savings plan, the part not yet invested sits in the account for a while. If it earns interest there, that narrows the gap in rising markets.
  • Costs: at many brokers, savings plans carry no order fee, while single purchases often cost a fixed fee. With small installments, that matters.

Information only, not investment advice.

Updated · Content and figures checked