Ndubuisi Egwim compares investing £20,000 as a lump sum versus spreading it over 12 months. Lump sum grows to roughly £93,219 versus £89,700 for pound-cost averaging, a £3,519 difference. But the psychological comfort of spreading investments can matter more than the small financial gap.
£20,000 invested as a lump sum on day 1 at 8% over 20 years, you end up with £93,219. Now, £20K drip fed over 12 months, average pound, you know, PCA, invested 6 months, invested gradually over time, you end up with £89,700. So the gap is just about £3,519. Now, past performance obviously does not predict future returns. The market could return less than 8% over the next 20 years. It could return more. Nobody really knows. What we do know is that a globally diversified index fund held over a long time horizon has historically rewarded patient investors. The direction of that evidence is clear, even if the exact numbers is not guaranteed. And as I would say, I'd rather be vaguely right than precisely wrong. But now, the gap of £3,500 is real money between pound cost averaging and lump sum. So the lump sum ahead. Imagine when that compounds over time. That is why I keep coming back to this. It's not just also about getting the more money, it's the psychological protection of pound cost averaging is what will allow you to stay invested through a volatile market without selling. Then that £3,519 is just theoretical advantage. The psychological benefit offsets whatever that amount would do for you.
