Ndubuisi Egwim compares dollar-cost averaging to lump-sum investing using the 2007-2009 crash. Charles Schwab research shows a dollar-cost averaging investor hit breakeven 8-10 months sooner, but by 2013 the lump-sum investor's larger initial capital had grown bigger in the bull market that followed.
She invests through the crash, month after month, as prices fall. Now, according to Charles Schwab research on pound cost averaging in declining markets, a PCA investor from '07 to '09 window would have achieved breakeven status at approximately 8 to 10 months earlier than a lump sum investor who bought at the 2007 peak before the bubble burst. This is a meaningful advantage, especially psychologically. But that's not all. Here's the twist. By 2013, roughly 5 years after that crash, Dr. Joe's larger initial capital base has grown enough through the bull market recovery that it began— it begins to outpace Dr. Julie's position. His early pain eventually became an advantage because the share size of his investor— investor capital working through the bull market tipped the long-term balance towards him. In this case, pound cost averaging does not win. Dr. JG's portfolio will not bleed as badly, but time in the market eventually heals almost all entry wounds. So in this case, obviously the lump sum does better. Now, the winner in this case, short term, seems like PCA, but LSI, that's lump sum investing, does much better.
