This is a follow-up to **Dollar Cost Averaging – Does it Work?**

I did a little research and put together this **spreadsheet** (download). I wanted to compare dollar-cost averaging with lump sum investing. For this example I assumed:

$100 invested in Vanguard’s S&P 500 Index Fund on the first trading day of each month for 199 months. To get the lump sum amount, I simply multiplied 199 by $100, which tells us how much was invested over the time period.

Dividends are reinvested at the closing price on the day that the dividend is paid.

The ending account value uses the July 3rd closing price.

Here’s what the chart looks like:

Obviously from this example, it would have been better to have invested a lump sum rather than dollar-cost average. But, **like I said before**, that’s not possible for 99.9% of the investors out there. So, my advice is to not worry about it and just keep socking money away for your future.

As you mentioned above and in your first post on the subject, for most of us we are dollar-cost-averaging by necessity because we save money as it comes in.

It is an interesting question, though; if you inherit $10,000 from Aunt Gladys, what is the best way to invest it? As a lump sum? Dollar cost averaged daily over a month? Monthly over a year? To really answer the question a large number of simulations would need to be done with a large number of starting points.

The article referenced in part 1 made a couple mistakes; first, the writer seemingly only made the calculations for one period. The results would have been very different if the period started in, for example, 1999. Second, nobody would DCA a lump sum over 10 years without getting at least some return on the uninvested portion in the interim.

Nick and others are right. The comparison of dollar cost averaging to lump sum investment in this USA Today article is EXTREMELY flawed to not consider the time value of money. If you had $100 to invest every month for 10 years that certainly is not worth $12,000 today. It’s worth much less, depending on what interest rate you would be charged. Conversely, if you had $12,000 to invest, that certainly is worth much more than $100 per month over the next 10 years, depending on what interest rate you could get.