Level 0 ETF basics · Part 6/14

Savings plan or lump sum: what historical data shows

A larger 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.

Information only, not investment advice.