I’ve Got a Lump Sum in Cash, Should I Invest It Right Away?

What should you do if you’ve just received a big bonus at work, inherited some money, sold a business, or come into a financial windfall? Should you invest it all at once, even if the market feels high or low, or take a gradual approach by investing in smaller increments over time?

This is a common question we hear from clients and investors alike. It’s no surprise—deciding how to invest a significant sum of money can feel overwhelming. What if you invest it now and the market drops? Or, what if you wait and the market takes off? It’s natural to worry about making the wrong choice or missing out on potential gains.

Both investing a lump sum immediately and spreading it out over time come with their pros and cons. Let’s explore some key factors to help guide your decision.

Start with Your Goals

Before making any investment decisions, consider your financial goals.

If you need the money for short-term purposes, like upcoming college tuition, the market’s volatility could be a concern. In this case, conservative options like short-term bonds, bond funds, or CDs might be better suited to protect your funds.

For long-term goals, such as retirement, investing in the stock market may be a better choice. Despite short-term fluctuations, the market has historically trended upward over time.

Compare Lump-Sum Investing vs. Dollar-Cost Averaging

Investing a lump sum means your money is fully exposed to the market immediately, allowing you to benefit from any immediate gains if the market is rising. However, since markets are unpredictable, a downturn could occur soon after you invest.

If the risk of short-term losses makes you uneasy, dollar-cost averaging (DCA)—where you invest a fixed amount at regular intervals—might be a more comfortable approach. For instance, you could invest $12,000 by putting in $1,000 monthly over a year. This way, you buy more shares when prices are low and fewer when they’re high, helping you manage the average cost over time.

Keep in mind, though, that research shows lump-sum investing outperforms DCA 68% of the time. If maximizing returns is your main goal, lump-sum investing could be the better option. However, if you’re worried about losses and potential emotional reactions, DCA may be worth the slight reduction in expected returns.

Don’t Wait to Invest

Historically, stocks and bonds outperform cash over the long term, so it’s important to start investing as soon as possible. Holding off is essentially an attempt to time the market, which is notoriously difficult. In 2023, equity fund investor returns trailed the S&P 500 by 5.5%, largely due to market timing efforts.

Both lump-sum investing and DCA help you avoid this pitfall, letting you benefit from the market’s long-term growth. The key is choosing the strategy that aligns with your risk tolerance and long-term plan.

If you’re unsure which strategy is best for you, reach out—we’d be happy to help you decide.

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.