If you're debating between investing a large sum immediately or at set intervals, be aware that one strategy tends to outperform the other.
— the data suggests that a better outcome down the road still means putting your money to work all at once, Stucky said. And, compared with investing the lump sum, choosing dollar-cost averaging instead can resemble market timing no matter how the markets are performing.
"There are a lot of other periods in history when the market has felt high," Stucky said. "But market-timing is a very challenging strategy to implement successfully, whether by retail investors or professional investors." However, he said, dollar-cost averaging is not a bad strategy — generally speaking, 401 plan account holders are doing just that through their paycheck contributions throughout the year.
Additionally, before putting all your money in, say, stocks, all at once, you may want to be familiar with your risk tolerance. That's basically a combination of how well you can sleep at night during periods of market volatility and how long until you need the money. Your portfolio construction — i.e., its mix of stocks and bonds — should reflect that risk tolerance, regardless of when you put your money to work.
"From our perspective, we're looking at 10-year time horizons in the study … and market volatility during that time is going to be a constant, especially with a 100% equity portfolio," Stucky said. "It's better if we have expectations going into a strategy than afterwards discover our risk tolerance is very different."
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