When it comes to investing, one of the most common questions people face isn’t what to invest in – it’s how . Should you commit your money all at once, or drip-feed it into the market over time?

These two strategies, known as lump sum investing and dollar-cost averaging (DCA), represent different approaches to entering the market. And as you might expect, there’s no one-size-fits-all answer.

In this article, we’re not going to tell you which one is better. Instead, we’ll explore each approach and help you figure out which one might suit you best.

Two distinct approaches

Let’s begin with the basics: what each strategy actually means.

What is dollar-cost averaging?

Dollar-cost averaging (DCA) is a strategy in which you invest a fixed amount of money at regular intervals, regardless of what the market is doing. For example, you might set up an automatic transfer of $1,000 into an ETF every month. This regular contribution means you buy more units when prices are low and fewer when prices are high. In turn, you can average out the cost of your investments over time.

The biggest appeal of DCA is that it helps take emotion and market timing out of the equation. You’re not trying to guess when the market will go up or down; you’re simply committing to invest consistently, rain or shine.

This approach is especially popular among salaried workers who can invest a portion of their income regularly, and it’s the backbone of many automated investing platforms (including Pearler's!).

What is lump sum investing?

Lump sum investing is exactly what it sounds like: putting a large amount of money into the market all at once. Let’s say you’ve saved $20,000 and want to invest it. With a lump sum approach, you would invest the full amount immediately rather than spreading it out over several months.

This method often aligns with investors who believe they can seize on the historical trend that markets tend to rise over time. The sooner your money is invested, the theory goes, the longer it has to grow and compound. However, lump sum investing also comes with a psychological challenge: what if you invest right before the market drops? That uncertainty can cause anxiety, especially for newer investors.

Choosing the right strategy: key questions to ask

To determine which approach might work best for you, it’s helpful to consider your personal preferences, financial circumstances, and mindset. Below are several questions that can guide you.

How much do you have to invest?

For smaller one-off balances, lump sum investing may be more practical. Trying to stretch a small investment across multiple trades can quickly add up in brokerage fees. Instead, putting the full amount in at once might be more efficient. It gives your money immediate exposure to the market and helps reduce unnecessary costs.

Dollar-cost averaging can be done with smaller sums , but if you're investing directly into shares or ETFs on the ASX , you'll need to be aware of the minimum trade size, usually $500 for a first investment. That threshold makes it difficult to DCA frequently with very small amounts.

If you're working with a smaller investment balance – say, under $1,000 – you might consider micro-investing instead. This often lets you start with as little as $2 to $10, making it an accessible way to dollar-cost average.

On the other hand, if you're dealing with a larger amount, you have more options. You could invest it all at once or spread it out over time through DCA. For some, spreading out a big investment helps reduce anxiety about market timing and adds a layer of psychological comfort.

What is your risk tolerance?

Are you someone who can sleep soundly knowing your investment might drop 10% tomorrow? Or does the idea of sudden loss give you second thoughts?

If you have a high risk tolerance , lump sum investing may feel like a confident bet. You might believe in the market’s long-term growth and might not be fazed by short-term volatility. For example, if you’d kept investing during the early days of the COVID-19 market crash , you may have seen strong returns in the rebound that followed. Conversely, your perspective may be different if you ever lump sum invested before a market crash.

If you have a lower risk tolerance, DCA may feel more comfortable. By spreading out your investment, you reduce the risk of investing everything just before a downturn. While it doesn’t guarantee you’ll avoid losses, it can help cushion the impact and make the process feel less stressful.

How do you feel about budgeting?

Are you a planner who likes setting aside money for specific goals each month? If so, DCA may slot neatly into your lifestyle. It’s a strategy that thrives on regularity and discipline – qualities that go hand-in-hand with budgeting .

On the other hand, your income might fluctuate or you may prefer to invest when you have a surplus rather than on a set schedule. In that case, lump sum investing might feel more manageable. You could view investing like topping up a savings account , adding to it when you have extra funds on hand.

Some people even blend the two approaches: maintaining a baseline DCA habit while occasionally investing a lump sum when their finances allow.

Do you like to automate your finances?

If you’re someone who thrives on automating your finances – automatic transfers, direct debits, recurring savings – DCA can be a powerful tool. You can set up an investment plan that runs in the background, meaning you’re steadily building wealth without needing to actively think about it every month.

This can not only reduce decision fatigue but may also remove the temptation to time the market (a notoriously tricky thing to do).

That said, lump sum investing can also be automated in stages. Some investors set rules for themselves. For example: “whenever I reach $5,000 in savings, I’ll invest it”. It’s not quite as regimented as DCA, but it still introduces structure to an otherwise sporadic approach.

Are you investing a windfall?

Have you received a large sum, like a bonus, inheritance, or tax return? Deciding what to do with it can be challenging. You might feel tempted to wait for “the right time,” but that can easily lead to inaction.

According to several historical market studies, lump sum investing has outperformed DCA about two-thirds of the time over long periods. This makes sense at a glance: the market tends to trend upward, and investing sooner gives your money more time to grow.

Still, emotions play a big role here. And, more importantly, past performance doesn't guarantee future returns. If the idea of investing $50,000 tomorrow feels overwhelming, you might consider a compromise – investing part of it now and DCA-ing the rest over several months.

How confident are you in market conditions?

Your outlook on the market may also influence your choice. If you believe the market is fairly valued, or even undervalued, you may be more comfortable investing a lump sum. You might see current conditions as an opportunity and want to act decisively.

But if you’re unsure – say, markets have been volatile, or the economic outlook is cloudy – DCA might feel safer. It allows you to gradually build your position without going all in during an uncertain time.

It’s important to note that trying to time the market rarely works well over the long term. But if gradual entry helps you stick to your plan, that’s a win in itself.

What’s your investing horizon?

The longer your investing horizon, the historically more likely a lump sum will outperform. If you’re investing for a retirement that’s 20 or 30 years away, short-term market dips may have less of an impact on your final outcome. In this case, getting your money working sooner could pay off. (Although again, we must stress that historical returns don't indicate future performance.)

If your goal is closer, like buying a home in 5-10 years, you may prefer DCA. This approach can reduce the risk of a poor outcome if the market falls just before you need to withdraw your funds.

Matching your investing strategy to your timeframe can be an effective way to manage risk and keep perspective.

D o you struggle with analysis paralysis?

Some investors delay getting started because they’re afraid of making the wrong move. They wait for “the dip” or the “right time”, and in the process, miss out on time in the market.

If that sounds like you, DCA may be an antidote. It gives you a structured way to begin without needing to make a big one-time decision. Once you’re in the habit, you may find your confidence grows and that investing doesn’t have to be so intimidating after all.

There’s no right or wrong answer

DCA and lump sum investing both have their strengths and drawbacks. One isn't inherently better than the other – they simply serve different needs.

DCA can offer emotional comfort, simplicity, and structure. It helps ease investors into the market and makes it easier to form a consistent habit.

Lump sum investing, on the other hand, can maximise exposure to both market growth and market risk. It may better suit confident investors with high risk tolerance and long time horizons.

Ultimately, the best strategy is the one you can stick with. And sometimes, the answer isn’t binary. Many investors find value in combining the two: regular contributions from their paycheque (DCA) and lump sums when they receive unexpected cash.

If you’re unsure which strategy is best for you, it’s worth chatting with a licensed financial adviser . They can help you navigate your options, clarify your goals, and tailor a plan to your unique situation.

In the end, consistent investing, however you do it, is the real key to growing wealth over time. Whether you drip it in or drop it all at once, the most important thing is getting started.

Happy investing!