Ask Wealthfront: Should I Dollar Cost Average?
Alex Michalka, PhD
If you have a large sum of cash you plan to invest, there are three main approaches you might take:
Option 1: Lump sum investing. Invest the entire sum right away.
Option 2: Dollar cost averaging. Invest a set amount of money on a predetermined schedule until you’ve invested it all. For example, you might invest $1,000 a month for five months instead of investing $5,000 immediately.
Option 3: Market timing. Hold cash and wait for the “right” time to invest.
How should you decide? In this post, we’ll break down the case for each approach so you can choose the option that’s right for you.
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Nothing in this communication should be construed as tax advice, an offer, recommendation, or solicitation to buy or sell any security. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Investment advisory services are provided by Wealthfront Advisers LLC, an SEC-registered investment adviser, and brokerage products and services are provided by Wealthfront Brokerage LLC, Member FINRA/SIPC.