Lump-sum investing

Lump-sum investing is what happens when you invest money you already have, such as an inheritance, a bonus or the proceeds of a sale, in one go rather than in instalments. The logic is time in the market: if the investment’s expected return is higher than that of cash, then on average the sooner the money is invested, the more it can be expected to earn. Against this sits the risk of bad timing: investing everything just before a significant fall means the whole sum suffers the loss.

Historical studies across several markets have found that a lump sum invested immediately has usually beaten the same sum fed in over a period of months, simply because markets have risen more often than they have fallen. Usually is not always, and the unlucky cases can be painful. The decision is partly psychological: if a fall straight after investing would lead you to sell in panic, a phased approach you stick with may serve you better than a lump sum you abandon. Your target asset allocation matters more than the method of getting there.