What’s Cracka’ Lackin’,

This is the Master Money Newsletter, your sidekick for everything money.

The Robin to your Batman. The marshmallow to your s’mores. The Siri to your questions.

“Hey Siri, what’s going on in The Master Money Newsletter today?":

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Here’s what we have on deck today:

-Should you invest all your money at once?

-7 Ways to Make Your First $100K Online!

-5 Financial Goals By Age

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When I was new to investing as a teenager, I used to read investment articles all the time.

I was like a sponge trying to soak up every piece of information that I could.

As I would read more, I kept hearing about this magical concept called Dollar Cost Averaging.

People would claim that it was the best way to invest.

But as I graduated from reading fluffy articles to reading actual investing studies, something shifted.

Today, I am going to share that shift with you. And boy oh boy is it a doozie.

Today we are going to compare what happens when you invest your money with a dollar-cost average strategy and what would happen if you took all your money and put it into the market at once.

This is important to understand for a number of reasons:

• You saved extra cash last year and are trying to decide if you should invest it all at once.
• You get a lump sum or inheritance.
• You get a bonus at work
• You sell a company
• You make a large gain on your home
• You Make a large gain on an investment
• You have a financial gift from a wedding
• You win the lotto (stop buying lotto tickets)
• Lump sum pension

You get the picture.

First, let’s define what dollar-cost averaging is.

What is Dollar Cost Averaging

The basic idea of dollar-cost averaging is, I've got some moola to invest. Rather than putting it all in at once and taking the risk of what happens with the market immediately, I'm going to put it in slowly over time.

So, say I have got $10,000 to put in, instead of putting in $10,000 all at once, I'm going to put in $2,000 a month over the next five months.

If that investment goes up while you are waiting, you end up buying fewer shares, because the price per share has increased.

But, If the investment goes down, you end up buying more shares because it was a little bit cheaper, so your $2,000 goes further.

And what you end up with over the span of several months is the average price of those shares over that time period.

We're buying fewer shares when they are up, we're buying more shares when they are down, which lets us get a lower average weighted cost. Ultimately that gets us a better upside potential in the long run for the investment.

Really dollar cost averaging is a way to manage your risk.

What Is Lump Sum Investing

Lump sum investing is the opposite. It is where you invest all of your money at once. You make it rain in the market.

Let’s say your uncle Rico gives you $100K.

Instead of taking that 100K and investing 10K a month for 10 months, you invest all of that money at once.

Now let’s look at which is better: Lump-Sum Investing or Dollar Cost Averaging.

The Thought experiment:

Imagine you have won the lottery with $1 million and you want to try to preserve as much of its purchasing power over the next 100 years.

However, you can only undertake one of two possible investment strategies. You must either:

• Invest all your cash now, or
• Invest 1% of your cash each year for the next 100 years

Which would you prefer?

Now before you decide I want to give you a little stat: The stock market goes up about 80% of the time and goes down 20% of the time.

Yes, this is a real stat.

If you assume that the market will increase in value over time (otherwise why invest right?), then it should be clear that buying now will be better than average in over 100 years.

Waiting a century to get invested will not be kind to your purchasing power.

Not only will inflation eat the whole kit and kaboodle, but you will also lose out on MASSIVE GAINS.

Now take this same idea and break it down to time horizons smaller than 100 years.

If you wouldn’t wait 100 years to get invested, then you shouldn’t wait

• 100 months or even
• 100 weeks either
• Or 100 days.

The longer you wait, the worse off you will be, on average.

I am going to show you exactly why:

Study 1: Wowza

Richard Williams and Peter Bacon performed a study in the early 90s. They looked at historical stock market data, spanning around 70 years. Their findings showed that around 67% of the time, someone who invests a lump sum gained higher returns in their first year than someone who followed dollar-cost averaging and drip-fed their investment over the course of the year.

Then they ran the simulation over one-year holding periods from 1926 through 1991, the lump-sum strategy significantly outperformed dollar-cost-averaging about two-thirds of the time.

Study 2: What about bonds tho?

A more recent study looks at bonds instead of stocks, except in the fixed-income arena rather than stocks. The study, "Does Dollar-cost Averaging Work for Bonds?", which used long-term Treasuries and corporate bonds in place of the S&P 500, found that lump-sum investing again topped dollar-cost-averaging about two-thirds of the time.

Study 3: Good Ol’ Vanguard

Another study that was done more recently by Vanguard, looked at the difference between dollar-cost and averaging and lump sum investing by investing in a 60/40 (stock/bond) portfolio in three different countries.

They found that in each market, a lump-sum investment led to greater portfolio values approximately two-thirds of the time. They did variations of this test and saw very similar results, too.

Does this prove that you should only lump sum invest? Nope.

We have to remember that we are humans with emotions. Some will have a much lower tolerance to risk than others.

As we know when it comes to our money, behavior matters most.

Money is an emotional thing. And We have to make sure that we are managing our money to hedge against our emotions.

This means that everyone's investment plan will be completely different.

Sure, lump-sum investing may be mathematically the best route but if it is going to keep you up at night then it’s not the strategy for you.

Money is there to reduce your stress and anxiety not increase it. If money is increasing your stress you are doing something wrong.

Stress with your money can ruin your life. Empowerment with your money can change your life.

Who should invest by Dollar Cost Averaging

• New investors.
• Nervous Investors.
• People who are not comfortable with a large sum of cash 100k-300K.
• Those who wish to limit their market risk over time.
• Those who want to possibly lower your average price per share.

Lump-sum investing may best suit investors who:

• Don’t let emotions determine their investment decisions
• Have a higher risk tolerance​
• Seek to achieve the highest potential returns
• Have experience researching investments and determining the optimal buying price

High-Performance Book Club 📚

I get a ton of questions from listeners and readers as to what I am reading. So we decided to let you know via the newsletter. The High-Performance Book Club will be a way to share this. If you want to be Elite in your career, business, or with your wealth, then welcome to the club. If you would like to see our previous picks, you can find them here.

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​Think and Grow Rich ​

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The Personal Finance Podcast 🎙️ ​ ​

​The Personal Finance Podcast​

I was also a guest on Marriage, Kids, and Money. Here it is!

​This 34-Year-Old Millionaire is Helping His Kids Become Millionaires​

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Youtube

​7 Ways to Make Your First $100K Online!​

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