Lump sum or steady stream?
DCA means investing the same amount on a regular schedule. The calculator simulates yearly market swings around your chosen average return, so you can see how the two approaches compare in a wobbly world.
Volatility is how much returns swing year to year. The S&P 500 has historically averaged around 15-20% standard deviation. Educational simulation only.
Investing $500 a month over 20 years through the same simulated market. A lump sum invested at year 0 would have ended at $1,143,431.
Lump sum tends to win when markets rise consistently. DCA tends to shine in choppy or falling markets, and almost always wins psychologically, because most people don't have a lump sum, they have a paycheck.
Draw one return for each of the 20 years from a bell curve centered on 8% with 15% volatility.
Year return = average return + volatility * normal random draw
The draw is seeded deterministically, so the same inputs always produce the same chart and both paths face the identical sequence of years.
Lump-sum path: invest all $120,000 at year 0, then compound it by each year's drawn return.
Lump sum ends at $1,143,431
Dollar-cost-averaging path: add $500 every month, compounding the running balance at each year's equivalent monthly rate.
Dollar-cost averaging ends at $331,624
Same total dollars invested, same return sequence. The only difference is the timing of the contributions.
The real power is discipline, not math.
The simulation is deterministic, same inputs produce the same numbers, so you can compare scenarios without chasing randomness. In reality, sequence matters: a bad first decade with DCA can produce better long-run results than a great first decade with a lump sum.
The honest framing: most people don't have a lump sum. They have a paycheck. DCA is what happens automatically when you contribute to a 401(k) every two weeks. That's its real power, discipline, not math.
Assumptions
- Annual returns are drawn from a normal distribution. Real market returns have fatter tails than normal: extreme up and down years happen more often than a bell curve predicts.
- The random sequence is deterministic (seeded), so identical inputs always produce identical results.
- Both columns experience the same return sequence, so the comparison isolates the timing effect, not the luck-of-the-draw effect.
- No taxes, no fees, no inflation. The total contributed for each path is the same dollar figure.
Limitations
- The deterministic seed means the chart shows ONE simulation, not the distribution of all possible outcomes. Try the Monte Carlo retirement simulator on this site for the full range.
- Real market returns are not independent year to year (momentum and mean reversion both exist), which a normal-draw simulation does not capture.
- Most readers cannot actually choose between lump-sum and DCA. They have a paycheck. DCA is what naturally happens when contributions arrive on payroll.
- The lump-sum path assumes the lump sum exists today and would otherwise sit in cash, ignoring tax or liquidity reasons it might not be deployable that way.
- It is not a prediction of whether lump-sum or DCA will win in your actual situation.
- It is not a recommendation of any specific investing schedule.
- It is not a research study. Academic studies of lump-sum vs DCA use real historical return sequences, not a single simulated one.
- It is not personalized advice. A CFP can help with the household-specific call.