Probably repeating what many others have already stated (I just skimmed through the comments): it really depends on your stomach (aka psychology)!
My advice in short:
Start with DCA for a while (maybe 3-6 months, YMMV) and if during that period you find out (about yourself) that losses in your tranches (or overall invested money) don’t bother you at all, invest the remaining amount lump sum if you still feel you’re up for this.
The worst that can happen is that we’re entering another fierce bull market and you have a little bit of FOMO for a while.
The best that can happen (IMO) is that you learn about your actual risk tolerance with your own skin in the game and can decide for yourself what investment style is best for you.
My advice at length:
Research seems to indicate that lump sum outperforms DCA, but I believe your own psychology plays a very and even more important role.*
A recent Vanguard paper on cost averaging versus lump sum summarizes this well:
- "Lump-sum investment strategies beat common cost averaging investment
strategies two-thirds of the time, according to historical and simulated
market data. - Despite the expectation of lower returns, cost averaging might be considered
for investors with very high aversion to both risk and losses who might be
tempted to hold a lump sum entirely in cash. - Even without a lump sum to invest, investors can benefit from maximizing their
time in the market by using retirement account front-loading and withdrawal
sequence strategies, or simply by not delaying when funds are available for
investment"
They say that cost averaging is for folks with a “very high aversion to both risk and losses”.
I would qualify that with: it’s one thing to read (or write) a paper that has analyzed a boatload of historical and simulated data and to then conclude that on average you fare better with the lump sum invested; it is an entirely different thing to personally experience being one data point with a the lump sum investment where you’re in the one third camp of doing worse, especially if you do significantly worse and loose say, 20k or 30k of your 150k within a year or two. It shouldn’t matter in the long term, but how will you feel and react?
I consider myself relatively risk tolerant (I for example allocate a significant portion of my portfolio in stock picks), but I would never** have the stomach to do lump sum investing.***
Good luck!
* The research typically analyzes theoratical allocation in lump sum versus cost averaging. It does not look at actual investments that were lump sum versus cost averaging and thus completely factors out psychology or data on when lump sum investors (or cost averaging investors, for that matter) chickened out and sold (or stopped averaging in and sold also and stayed in cash for the money not yet invested).
Actual data on this is messy and doesn’t lend to clean statistical analysis as required for research papers…
** Well, if I had insane amounts of money, say fifty or a hundred million, where I’d still be totally fine after taking a 50% hit, maybe I would have the stomach to lump sum invest … in reality, I’m not there, and I’m sure if I were there, after an unpleasant lump sum experience just once, I’d avoid it forever.
*** E.g. I kind of had to lump sum invest my second pillar into a Freizügigkeitsstiftung when I quit my previous job around late 2020. It’s since down about 5% (and was down 11% at its worst). I cannot express adequately how much I hated observing this, even though I know that typically things will work out just fine with my investment horizon of 10-15 years.
In practice, I just hated it and wished I had been able to cost average invest the money myself as I did in my actively managed portfolio, which not only didn’t take a hit in 2022 but was actually up.
Classical loss aversion behaviour … to quote Jason Zweig from his Devil’s Financial Dictionary:
LOSS AVERSION, n. Classical economics presumes that people will wager an equal amount for a chance to win $100 or a chance to avoid a $100 loss. After all, either result would leave you $100 better off. Experiments by psychologists, however, have shown that people are loss-averse: Imagine being asked to bet on the toss of a coin. If it comes up tails, you would lose $100. How much would you have to win on heads in order to be willing to take the gamble? The typical person insists on a number between $225 and $250, showing that the pain from each dollar of loss is more than twice as intense as the pleasure from each dollar of gain.
Investors who have been “on a roll” of recent profits often forget how painful losing money is. They will soon be reminded, to their keen regret."