# Should you go all-in or slowly into the stock market?

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The bull and bear statues are seen outside of the Frankfurt Stock Exchange in Frankfurt, Germany.

Tess Vigeland: All right, one piece of advice we offer regularly to our callers is to make regular deposits into their retirement accounts. It's called dollar-cost averaging. And what it does is ensure that you are buying steadily into the markets whether they are up or down. But what if you got a better return by putting big chunks in all at once?

Gregg Fisher has some new research that says that, indeed, is the case. He's president and chief investment officer of Gerstein Fisher in New York.

Gregg Fisher: Thank you very much. I'm happy to be here today.

Vigeland: I have to tell you this is completely contrary to pretty much everything we say on this show. So give us the top reason why dollar-cost averaging may not be the best strategy.

Fisher: You know, the concept of dollar-cost averaging for young accumulators that are systematically saving money for their futures, this is a good approach. And there's nothing wrong with that. But our research paper is really on the heels of the last decade of difficult market performance with lots of volatility. A lot of investors that are sitting on lump sums of cash are hesitant to put those funds to work, because of the experience that they've had in the last 10 years in the market. And here we're really talking more about "Does an investor with a lump sum decide to invest in the markets all at once? Or does that investor gradually move in over time, for example, over the next 12 months?"

Vigeland: Well then, let's talk about what you actually found in this study in terms of the benefits of dollar-cost averaging versus these lump-sum inputs into the market. Give us the rundown of the numbers.

Fisher: So basically, what we did is we looked back to 1926 and we looked at the S&P500 as a proxy for investing in equities. And what we did was we looked at the idea of investing a sum of money, at the beginning of the month and then holding for 20 years. We also looked at investing that's the same amount of money over one year. What we found is that over rolling 20-year periods of time, historically, 70 percent of the time, I would've ended my 20-year period with more money doing the lump sum than dollar-cost averaging in.

Vigeland: But if you are not dollar-cost averaging, aren't you market timing? Because you can't know when you should be putting that lump sum into the market.

Fisher: Well that's true. If you are dollar-cost averaging, you are making a decision to do it over 12 months, 18 months, three months. The problem I find with dollar-cost averaging is imagine you're a dollar-cost averager. So as I mentioned earlier, 70 percent of the time, the lump sum does better. But 30 percent of the time, dollar-cost averaging did better. The reason it does better in those periods is because those are periods where the market's going down. So imagine you're putting in your money every month, and every month you put it in, it goes down. In my experience working with individual investors, when the market's going down, a lot of dollar-cost averagers stop.

Vigeland: Right.

Fisher: They actually say things like, "Look, the market's going down. Let me slow it down or stop, and when the market starts going up again, then I'll start investing again."

Vigeland: Which is exactly what we tell them not to do, because then you're buying high and selling low.

Fisher: That's correct.

Vigeland: What should we take away from this? You know, particularly for those who are nearing the age of retirement or at retirement. They've taken their money out of the market, they are sitting on that lump sum that you're talking about and they don't have the time perhaps to make up for it by dollar-cost averaging over 20 years. Would those be real candidates then for just putting a lump sum in?

Fisher: I think first, it really, of course, comes down to your overall strategy. But I think a key element here is, if I'm an investor at age 60 thinking of retiring, I'm gonna try to figure out how much money I'm gonna need for the next 10 years -- getting me to roughly 70 in this example. And that money I would consider having \in short-term, fixed income, cash -- conservative investments to get me through a decade. So that the money that I do put in the stock market -- whether I move it in over 12 months or put it in as a lump sum -- is truly assets and money that I'm not gonna need for at least 10 years and preferably, longer.

Vigeland: Alright. Gregg Fisher is president and chief investment officer of Gerstein Fisher in New York. And we've been talking about their study about dollar-cost averaging. Thanks so much for coming in.

Fisher: Thank you for having me.

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.

As Mr. Fisher explained the paper's purpose, and as Ms. Vigelund assessed the paper to prove contrary to Marketplace's frequent recommendation of dollar-cost averaging, it struck me that there was a rather glaring error in the execution of the research. Or at least the interpretation of the results.

The paper was comparing lump sum investments completed at the BEGINNING of a period, and comparing those investment performances to the same amount distributed into investments over the course of a year. In most cases, a person is dollar-cost averaging because their money is flowing in to them at a pace, NOT because they are starting with a lump sum and choosing to invest it 1/12 at a time.

If I start work for a company in January of 2012 with an increased salary and I decide to put more money per month into my 401(k), and by December 2012 I have put $5,000 into that 401(k), and the 401(k) has been performing well, OF COURSE I am still going to have a smaller result than if I had been able to invest$5,000 in January. A portion of the money has been in for less than 30 days, and portions have been in for nearly 365, but not the lump sum.

But it is STILL better for me to go ahead and invest something than invest nothing. Had the research been conducted with dollar-cost averaging versus lump-sum investments at the END of the same yearly period, we might get closer at determining a likely comparison for what the average investor should be doing with his or her retirement savings. But then we would have to also factor in what else would a person do with that money while it's not being invested. Should it stay in a checking account? In a moneymarket fund? Under the mattress?

This is not to knock the research, because I did take a quick look at the paper as linked from Marketplace's website and it is admittedly far too complex for me to follow. But from the abstract and what I was able to gleen, the paper's intent was much more about the investor's decision making process. It tries to address whether it is prudent to find a "right time" to invest, when one already has a lump sum to start with, rather than making a one-time decision with that same sum. Making the comparison to routine monthly investments of newly aquired money doesn't seem quite as valid.

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