Should You Invest a Lump Sum or Drip-Feed Your Investments Over Time?

When stock markets fall, drip-feeding your cash can help protect your investments and take the emotion out of investing.

If you have a pile of cash to invest, should you stick it in your stocks, shares and investment funds all in one go or drip-feed it in instalments? H Capital owner and responsible officer, David Bojan, explores the pros and cons of drip-feeding vs lump sum investing over time below.

Last year, analysis from investment firm Vanguard showed that lump-sum investing tends to beat a regular drip-feeding investment approach two-thirds of the time. However, drip-feeding can help mitigate short-term risk thanks to dollar-cost-averaging.

Source: Vanguard

The pattern of lump-sum investments outperforming holds particularly true when markets are on the way up, with investors reaping the rewards of having been fully invested from the start. - David Bojan

Meanwhile, those who spread their investments out over a longer period miss out in environments like these, thanks to the opportunity cost associated with keeping cash on the sidelines.

There is no one-size-fits-all approach, though, and pound cost averaging can take the emotion out of investing – something to consider now as market volatility continues. It can also result in a smoother investment journey in the short-term.

Global stock markets have sold off in the wake of an escalating conflict in the Middle East. During times of volatility like this, it is tempting to divert from your usual approach and sell off shares.

It’s easy to get spooked by a few big market falls, but it’s important to stay focused on the long term. While your portfolio might take some knocks now, these movements become much less relevant over five, ten, or twenty years.

The advantages of regular investing

The investment adage says that time in the market is better than trying to time the market. You have no way of knowing when the market is at its peak or its trough, but investing regularly throughout the cycle can remove the stress and temptation of trying to do so.

Investing little and often is a great way to build wealth. When markets are falling, your money buys more shares or fund units; and they buy less when markets are rising. Over time, that should average out. - David Bojan

For that reason, it pays to have a concrete investing schedule in place, especially given the tendency of stock markets to recover from shocks over time.

It took less than a week for the S&P 500 to recover from the Liberation Day tariff shock last April, and that was followed by the index’s best May since 1990.

This highlights the value of patience: sometimes the smartest move is to simply sit on your hands and focus on your time horizon. Regular investing… can help smooth out market ups and downs.

Should you make a single lump-sum investment or set up regular deposits?

Ultimately, there are advantages and disadvantages to both approaches.

Lump sum investing tends to outperform when markets do well, but regular deposits can help smooth out market volatility. - David Bojan

However you invest, it is also important to make sure you have a well-diversified portfolio, and carefully consider your time horizon when deciding on what kind of assets to hold and invest in. Someone closer to retirement may want more stability, while longer-term investors can afford to take more risk.

Need Help With Investing?

If you need help with your portfolio, get in touch with David and the team, or view our library of helpful resources.