When a large sum lands in a bank account—a bonus, inheritance or pension payout—the next move can feel scary. Putting it all into the market at once raises a nagging fear: what if everything drops right after hitting “buy”? That anxiety is exactly why many people default to dollar-cost averaging.

Dollar-cost averaging in this context means easing the money into investments over months instead of investing the whole lump sum immediately. It sounds cautious and sensible. Yet for retirement investing, history and basic math both suggest this comfort strategy usually comes with a noticeable price tag.

What DCA Means

There are two very different uses of dollar-cost averaging. One is automatic: investing a slice of each paycheck into a 401(k) or IRA. That is simply regular saving and makes perfect sense. The other is voluntary: choosing to drip a big existing cash pile into the market over time. That second use is what undermines returns. Instead of investing the full amount in a target portfolio—say 60% stocks and 40% bonds—an investor holds part of it in cash and only slowly moves toward that allocation.

During the transition, the portfolio is not what was originally judged appropriate for long-term goals and risk tolerance. It is temporarily much more conservative than intended, whether or not that aligns with actual needs.

Lump Sum Edge

To see how the two approaches compare, researchers have looked at long runs of market history. A research paper by Anatoly Shtekhman, Christos Tasopoulos, and Brian Wimmer at Vanguard compared funding a 60/40 portfolio all at once versus in equal chunks over twelve months across many overlapping periods.

The outcome was clear: lump-sum investing came out ahead roughly two-thirds of the time. On average, it produced a modest edge across the tested periods, even though the gradual approach could look better in the more adverse start points. That gap may sound small, but compounded over decades of retirement saving, it meaningfully affects the final nest egg. Similar comparisons using different implementation windows also tend to point the same way: whether the portfolio is all stocks, all bonds, or a mix, moving in sooner generally beats stretching the process out.

Anatoly Shtekhman, an investment strategist, writes, “the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible.”

Why Odds Favor

The reason is straightforward: over long periods, growth assets like stocks and even bonds tend to rise more often than they fall. Cash, on the other hand, typically earns the lowest return of all. If money is set aside specifically for retirement and destined to be invested anyway, leaving a portion in cash is like letting it sit on the sidelines during much of the game. When markets rise while that cash waits to be deployed, the missed gains are gone for good.

Dollar-cost averaging does reduce the chance of investing everything right before a downturn, but the trade-off is spending far more time in low-return cash than the long-term plan actually requires. Over many scenarios, that drag outweighs the occasional lucky break when spreading out purchases helps.

The Risk Illusion

Supporters of gradual investing often argue that it is safer because it reduces short-term risk. That statement needs a closer look. If a careful process already led to choosing, for example, a 60/40 portfolio, that mix reflects a deliberate balance between growth and stability.

By dollar-cost averaging a lump sum into that same mix over many months, the portfolio is effectively kept more conservative than the chosen risk level for an extended period. Early on, it might be closer to 20% stocks and 80% cash and bonds, then 40% stocks, and only much later reach 60% stocks. In other words, gradual investing quietly overrides the original asset-allocation decision. Instead of aligning the portfolio with long-term goals from day one, it delays getting to the plan that already fits the investor’s risk profile.

Emotion Versus Math

While numbers support investing a lump sum right away, human emotions are rarely that tidy. Watching a large amount go into the market in a single day can feel like standing at the edge of a high diving board. For some, the fear of a sharp downturn immediately after investing is so strong that it could cause sleepless nights or impulsive selling at the first sign of volatility. In those cases, insisting on an all-in approach may be unrealistic, even if it is statistically superior. The strategy has to be one that can actually be followed through tough markets.

That is where dollar-cost averaging can play a secondary role—not as a return-maximizing tactic, but as an emotional bridge. It can provide enough comfort to keep an investor from abandoning the plan entirely, which would be far more damaging than moving in a bit too slowly.

Use DCA Carefully

If the emotional relief of easing into the market is genuinely needed, it helps to use the method deliberately rather than indefinitely. One sensible compromise is to set a strict schedule up front—perhaps three to six equal monthly investments—rather than taking a year or longer. The key is to pre-commit: choose the final allocation, decide the timetable, and then follow the plan regardless of headlines or short-term swings. Each scheduled step moves the portfolio closer to the target mix that already fits long-term goals.

It also helps to separate new savings from existing windfalls. Regular monthly contributions from income are naturally staggered over time, and there is no lump sum alternative for those dollars. The “lousy” version of dollar-cost averaging is specifically about spreading a large, already-saved cash pile over an unnecessarily long period.

Conclusion

For money already earmarked for long-term retirement investing, the evidence is strong: getting it invested in the right asset mix quickly usually leads to better results than stretching the process out. Markets tend to reward time in the market more than attempts to tiptoe around short-term volatility.

That said, peace of mind still matters. If going all in at once feels impossible, a short, clearly defined dollar-cost averaging plan can balance math and emotions. The real danger is letting fear keep long-term funds sitting in cash far longer than the plan ever intended.