Lump-Sum Investing Versus Dollar-Averaging

6 Pages Posted: 19 Oct 2005

See all articles by Michael S. Rozeff

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics


This article shows that if the market has an expected positive risk premium, then lump-sum investing is mean-variance superior to dollar-averaging. In showing this, it is critical to hold constant the risks of the two policies. When this is done over a 12-month horizon, lump-sum investing provides a higher return by 1 to 4 percent as the stock size declines. Lump-sum investing provides a higher return using the S&P 500 in 40 of 65 years. Risk-averse investors who prefer dollar-averaging can accomplish the aim of risk reduction more effectively by lowering the fraction of funds invested in the risky asset and investing them all at once.

Keywords: dollar-averaging, mean-variance efficiency

JEL Classification: G11

Suggested Citation

Rozeff, Michael S., Lump-Sum Investing Versus Dollar-Averaging. Journal of Portfolio Management, pp. 45-50, Winter 1994, Available at SSRN:

Michael S. Rozeff (Contact Author)

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

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