DCA vs. Lump Sum

How to read the historical comparison between plunging all your cash today vs. averaging in slowly over time.

What is the DCA Comparison Tool?

The tool takes your exact portfolio and runs two parallel historical backtests simultaneously.Path A (Lump Sum): You invest $100k on Day 1.Path B (DCA): You break that $100k into equal monthly chunks and invest them over your chosen time period, while the uninvested cash earns interest in a risk-free rate account.

Historically, Lump Sum wins 60-70% of the time because markets tend to trend upwards. However, the DCA tool proves its psychological value by showing the "regret minimization" achieved during brutal bear markets.

1. Interpreting the Key Metrics

Lump Sum Metrics

  • Total Return(Final Value - Initial Capital) / Initial Capital. Over a 10 year period, this number is massively higher than CAGR.
  • CAGRThe annualized growth smooth rate.

DCA Metrics

  • Total Capital InvestedThis will equal your initial capital. The tool assumes the uninvested cash sitting on the sidelines is growing at the Risk-Free Rate you set.
  • The "Catch-Up" CAGRDCA CAGR calculation is complicated because the money enters at different times. We calculate it using the Internal Rate of Return (IRR) approximation.

2. Reading the Historical Growth Graph

The comparative line chart visually contrasts the two strategies traversing historical volatility.

Interactive Sample: Dollar-Cost Averaging against a $120,000 Lump Sum investment.

The "Crossover" Points

Pay attention to when the blue (DCA) line crosses above the gold (Lump Sum) line. This happens during severe market drawdowns. The blue line is protected initially because most of the money is sitting in risk-free cash.

The Cost of Waiting

Look at late-stage bull markets (e.g., 2017-2019). The gold Lump Sum line will radically detach and fly above the DCA line because 100% of the capital was exposed to compounding growth earlier.

3. The Cash Yield Input

To run an accurate DCA test, you must input a Cash Yield (Risk-Free Rate). If you expect your uninvested cash to earn 5% APY in a High-Yield Savings Account while you wait to average in, enter 5%.

A 5% risk-free rate makes the DCA strategy significantly more competitive against Lump Sum than a 0% rate environment. The engine algorithmically adds this prorated interest to your uninvested baseline each month.

Compare Investment Paths

Don't guess which entry strategy is mathematically superior for the current market. Run a live comparison.

Run DCA Comparison