Personal Finance

$5k to invest: Lump sum vs staggered buys?

  • Last Updated:
  • Feb 14th, 2019 3:06 pm
[OP]
Member
Jan 11, 2013
203 posts
15 upvotes
GTA

$5k to invest: Lump sum vs staggered buys?

Hi all,

I've just recently paid off all my student loans, and am looking to start putting my money into a simple all-in ETF (VGRO) for long-term investing.

Would I be better off putting all my money ($5k) in right now as a lump sum into VGRO, or should I stagger the payments in? After this lump-sum I'll probably contribute $200/month continuously.

Since $5k is about 2 years' worth of contributions for me, I just fear overweighting the price now and then seeing the markets pull back into recession. Should I wait it out entirely until later this year when markets are expected to pull back?

Thanks!
13 replies
Member
Sep 9, 2012
372 posts
119 upvotes
TORONTO
67% of the time lump sum produces better results: https://personal.vanguard.com/pdf/s315.pdf.

If you're a long-term investor, but you fear a short-term market pullback, perhaps your risk tolerance is lower than you think.


Here's some more reading from the Globe about this very topic (market timing doesn't matter as much as time in the market): https://www.theglobeandmail.com/investi ... damentals/
Member
Sep 9, 2012
372 posts
119 upvotes
TORONTO
UrbanPoet wrote:
Feb 12th, 2019 3:08 pm
“Dollar cost averaging” strategy does have its advantages.
Yes. 33% of the time.
Deal Addict
Mar 8, 2013
2359 posts
1094 upvotes
It all depends on whether VGRO goes up or down in whatever period you are considering. When you say 'markets are expected to pull back', what does that really mean - when, from what level, and how much? VGRO is about $24 today, and may go 10% higher before it pulls back. If it is your first investment, it will be tough to see it drop to $22 after a large initial investment at $24. First you need to find a platform where commissions do not kill you on small trades, eg. Questrade for buying ETFs. Personally, I use technical analysis especially RSI for buy or sell decisions. Buy when RSI is around 30 as in October and December, not today when it is 67, which is close to a sell signal. I would not be making an all-in purchase today.
Deal Fanatic
User avatar
Aug 22, 2005
7734 posts
932 upvotes
Such a small amount. All at once. If it's for long term it does not matter what happens in the next few months while you're staggering it.
Member
Sep 2, 2009
385 posts
218 upvotes
Ottawa
The below all assumes you do not need the money for 20-30 years:

Lump-sum since it has a better chance of *more* success than staggering. Also, you are already planning on staggering/DCA with 200/month.

The above, of course, ignores emotions. Emotions lead to under-performance over the long term.

Another way of saying just lump-sum it and forget it: 20-30 years from now, a 20% up or down movement on 5k will be noise = 1k either way on 120k (= 3% over 30 years, 200/month for 30 years)...that is less than a 0.8% difference on a 20% drop.
Deal Addict
Mar 8, 2013
2359 posts
1094 upvotes
HBP wrote:
Feb 12th, 2019 3:34 pm
Such a small amount. All at once. If it's for long term it does not matter what happens in the next few months while you're staggering it.
Agreed, if you don't want to be active in the market and learn about the dynamics of fear and greed. Presumably this won't be the last investment made by OP, so there is something to be learned for future investments.
Deal Addict
Jan 28, 2007
2123 posts
1441 upvotes
SW Ontario
$5k? ... all at once, it would be different if it was $50K

Now it's a matter of if you think right now is a good time, or sit on your hands and wait for a dip or pull back
I'd rather be outdoors camping, kayaking, and mountain biking ...
Member
Jul 25, 2008
385 posts
265 upvotes
ottawa
5k isn't enough to worry about for dollar cost averaging when you're intending to put in $200 a month and this is long-term money. Within a year or two you'd recover from an ill-timed purchase, and your regular $200 purchases will help you back on the way up. You're probably paying 8.95 a trade, right? Splitting it is an administrative drag.

the important thing is the bolded. If this isn't long-term money, then yes, you're at risk, and forget dollar cost averaging, you need to reassess if you want to invest in equity at all.
Jr. Member
User avatar
Jan 23, 2019
107 posts
155 upvotes
Black site, Canada
curiousmoi wrote:
Feb 12th, 2019 2:38 pm
Hi all,

I've just recently paid off all my student loans, and am looking to start putting my money into a simple all-in ETF (VGRO) for long-term investing.

Would I be better off putting all my money ($5k) in right now as a lump sum into VGRO, or should I stagger the payments in? After this lump-sum I'll probably contribute $200/month continuously.

Since $5k is about 2 years' worth of contributions for me, I just fear overweighting the price now and then seeing the markets pull back into recession. Should I wait it out entirely until later this year when markets are expected to pull back?

Thanks!
This reference is exactly what I was going to refer to:
TorontoDavid wrote:
Feb 12th, 2019 2:50 pm
67% of the time lump sum produces better results: https://personal.vanguard.com/pdf/s315.pdf.

If you're a long-term investor, but you fear a short-term market pullback, perhaps your risk tolerance is lower than you think.


Here's some more reading from the Globe about this very topic (market timing doesn't matter as much as time in the market): https://www.theglobeandmail.com/investi ... damentals/
UrbanPoet wrote:
Feb 12th, 2019 3:08 pm
“Dollar cost averaging” strategy does have its advantages.
Most of the advantages are for the periodic form of investing. On an ongoing basis it makes sense to continually buy on a schedule, which 'forces' you to keep buying (more share-count wise) when the markets pull back. This method of DCA is using new periodic income to periodically invest.

In the question of a lump sum 'now' vs averaging in that same lump sum though, DCA isn't the winning strategy overall (as that Vanguard study shows, Lump sum wins vs DCA 2-1 in this scenario).

OP, if you are a bit fearful of timing it perfectly wrong, why not average in 2, 3, or 4 chunks. Don't take too long to get in though, as that study shows.

Time in the market, not timing the market :)
Deal Fanatic
Aug 14, 2007
9930 posts
1340 upvotes
Toronto
curiousmoi wrote:
Feb 12th, 2019 2:38 pm
Hi all,

I've just recently paid off all my student loans, and am looking to start putting my money into a simple all-in ETF (VGRO) for long-term investing.

Would I be better off putting all my money ($5k) in right now as a lump sum into VGRO, or should I stagger the payments in? After this lump-sum I'll probably contribute $200/month continuously.

Since $5k is about 2 years' worth of contributions for me, I just fear overweighting the price now and then seeing the markets pull back into recession. Should I wait it out entirely until later this year when markets are expected to pull back?

Thanks!
Put your 5K into something like Aurora Cannabis and watch it over the rest of the year. I've done pretty good (and taking profits) with $4000 in.
Deal Addict
Nov 13, 2013
1653 posts
670 upvotes
Ottawa
For such a small amount for sure buying all at once is the way to go. There is no way to know for sure which way markets will go. They are not expected to rebound or fall or whatever. The stock market is considered a leading indicator.
Fees will eat up a lot of your investment if you are buying at $200 a month. I would look for a fee free ETF provider. For example Itrade has a good list. With a low account balance their other commissions are outrageous at $25 a trade though.
Member
Aug 20, 2015
433 posts
199 upvotes
Toronto
Personally for me, $5k $50k or $500k I would lump sum. However if this is your first time investing and you want to get your feet wet maybe try DCA $500 a month and you can see the ebbs and flows of the market yourself.

At the end of the day this $5000 distributed now or DCA over the next year will have a small impact on your portfolio in the end. It's the regular contributions that will have a bigger factor.

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