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Stay the course · Lesson 9 of 11

Invest Regularly: Monthly Investing vs. a Lump Sum

See why investing a set amount each month works, what research says about lump sums, and why trading less usually earns more.

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THE WRITTEN LESSONFollow along at your pace

How should you actually put your money in: a little at a time, or all at once? In this lesson you will see why investing regularly works well, what the research says about lump sums, and why doing less once you are invested often pays. The figures are past results, mostly from the US, and they do not predict the future.

A set amount every month

The simplest habit is to invest a set amount every month, straight from your pay. When prices dip, your money buys more shares. When prices are high, it buys fewer. And you never have to guess the right moment.

A share price line that rises, dips in March and rises again to a high in June. Under it, one coin a month is labeled 100 dollars each month, with more share icons at the dip and fewer when the price is high.(opens the full-size picture)
The same 100 dollars buys more shares when the price is low.

A made-up example

Say you invest 100 dollars a month. The price is 10 dollars, then 5, then 10 again. So you buy 10 shares, then 20, then 10. That is 40 shares for 300 dollars, and they are worth 400 at the end. But if prices only rise, from 10 to 15 to 20, buying everything at once would have done better. Regular investing is not a trick that always wins. It is a habit that removes the need to time the market.

Three monthly cards at 100 dollars: month 1 at 10 dollars buys 10 shares, month 2 at 5 dollars buys 20, month 3 at 10 dollars buys 10. A label says Put in 300 dollars, 40 shares, worth 400 dollars. A small chart notes that if prices only rise, all at once wins.(opens the full-size picture)
A dip in the price means more shares for the same money.

What about a lump sum?

What if you already have a lump sum, like a bonus or an inheritance? Research from one large fund company found that investing it all at once beat spreading it over three months in about two-thirds of past periods. That is because markets have risen more often than they have fallen. Past periods do not promise the next one.

A stack of banknotes labeled A lump sum, beside two bars from past results at one large fund company. All at once did better about 2 times in 3, and spreading over 3 months did better about 1 time in 3.(opens the full-size picture)
In past periods, all at once won about two times in three.

The one real benefit of spreading it out

Spreading it out has one real benefit: less regret if prices drop right after you invest. If that helps you sleep, keep the spread short, a few months, rather than waiting for a perfect moment. With a big windfall, it is also fine to keep it in savings while you get advice.

Two panels. In the first, All at once, then a drop, a worried face sits by a falling line, labeled Big regret if prices drop. In the second, Spread over a few months, a calm face sits by the same line, labeled A little each month, keep it short.(opens the full-size picture)
A short spread can cut regret, not risk.

Once you are invested, trade less

Once you are invested, the hardest part is doing nothing. In one study of about 66,000 US households, the people who traded the most earned 11.4 percent a year after costs. Those who traded the least earned 18.5 percent. Every trade has a cost, and every rush to act is a chance to act at the wrong moment.

Two bars from US households after costs. A busy, anxious trader who traded the most earned 11.4 percent a year, and a calm person who traded the least earned 18.5 percent a year.(opens the full-size picture)
The calm investor earned more in this study.

Make it automatic

Set up a regular payment on payday, choose a broad, low-cost fund, and check on it about once a year, not every day. A plan like this is boring on purpose.

General education only

Nothing here says what you should invest in, or how much. For decisions about your own situation, speak to a regulated adviser.

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Read the full lesson script

How should you actually put your money in: a little at a time, or all at once? In this lesson, you'll see why investing regularly works well, and what the research says about lump sums.

The simplest habit is to invest a set amount every month, straight from your pay. When prices dip, your money buys more shares. When prices are high, it buys fewer. And you never have to guess the right moment.

Here's an example. You invest 100 dollars a month. The price is 10 dollars, then 5, then 10 again. So you buy 10 shares, then 20, then 10. That's 40 shares for 300 dollars, and they're worth 400 at the end. But if prices only rise, from 10 to 15 to 20, buying everything at once would have done better.

What if you already have a lump sum, like a bonus or an inheritance? Research from one large fund company found that investing it all at once beat spreading it over three months in about two-thirds of past periods. That's because markets have risen more often than they've fallen.

Spreading it out has one real benefit, though: less regret if prices drop right after you invest. If that helps you sleep, keep the spread short, a few months, rather than waiting for a perfect moment. With a big windfall, it's also fine to keep it in savings while you get advice.

Once you're invested, the hardest part is doing nothing. In one study of about 66,000 US households, the people who traded the most earned 11.4 percent a year after costs. Those who traded the least earned 18.5 percent.

So make it automatic. Set up a regular payment on payday, choose a broad, low-cost fund, and check on it about once a year, not every day.

So remember: investing a set amount regularly takes the guessing out. A lump sum has usually done better invested sooner, but a short spread is fine if it helps you. And trading less usually earns more. Before the next lesson, choose an amount you could invest automatically each month, however small. In the next lesson, you'll see what to do when markets fall.