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Should you invest a lump sum or drip feed your investments over time?
When stock markets fall, drip-feeding your deposits can help protect your investments, and take the emotion out of investing
If you have a pile of cash to invest, should you stick it in your stocks and shares ISA all in one go or drip-feed it in instalments?
You might well be asking yourself this question as the end of the tax year approaches. From 6 April, you’ll have a new £20,000 ISA allowance to use. But should you invest it all at once?
Last year, analysis from investment firm Vanguard showed that lump-sum investing tends to beat a regular drip-feeding investment approach two-thirds of the time. However, drip-feeding can help mitigate short-term risk thanks to pound cost averaging.
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The pattern of lump-sum investments outperforming holds particularly true when markets are on the way up, the investment platform said, with investors reaping the rewards of having been fully invested from the start.
Meanwhile, those who spread their investments out over a longer period miss out in environments like these, thanks to the opportunity cost associated with keeping cash on the side lines.
There is no one-size-fits-all approach, though, and pound cost averaging can take the emotion out of investing – something to consider now as market volatility continues. It can also result in a smoother investment journey in the short-term.
Global stock markets have sold off in the wake of an escalating conflict in the Middle East. During times of volatility like this, it is tempting to divert from your usual approach and sell off shares.
“It’s easy to get spooked by a few big market falls, but it’s important to stay focused on the long term,” said Andrew Prosser, head of investments at investing platform InvestEngine. “While your portfolio might take some knocks now, these movements become much less relevant over five, ten, or twenty years.”
The advantages of regular investing
The investment adage says that time in the market is better than trying to time the market. You have no way of knowing when the market is at its peak or its trough, but investing regularly throughout the cycle can remove the stress and temptation of trying to do so.
“Investing little and often is a great way to build wealth,” said Dan Coatsworth, head of markets at AJ Bell. “When markets are falling, your money buys more shares or fund units; and they buy less when markets are rising. Over time that should average out.”
For that reason it pays to have a concrete investing schedule in place, especially given the tendency of stock markets to recover from shocks over time.
It took less than a week for the S&P 500 to recover from the Liberation Day tariff shock last April, and that was followed by the index’s best May since 1990.
“This highlights the value of patience: sometimes the smartest move is to simply sit on your hands and focus on your time horizon,” said Prosser. “Regular investing… can help smooth out market ups and downs.”
The advantages of lump-sum investing
On the other hand, lump-sum investing can lead to greater returns, especially during periods when the stock market increases.
Vanguard’s analysis looked at one-year rolling investment performance from 1979 to 2022 across a range of geographies, including US stocks and emerging markets.
It also considered a range of investment splits, including splitting the lump sum into three, four, five and six instalments and investing each portion one month apart.
The “hit rates” detailed in the table show how often one strategy outperformed the other after a one-year investment period, expressed as a percentage.
Swipe to scroll horizontally
Lump-sum investing beats regular investing around two-thirds of the time
Row 0 - Cell 0
US (USD)
UK (GBP)
Canada (CAD)
Europe (EUR)
Australia (AUS)
Emerging markets (USD)
Global (USD)
Lump sum vs three-month split
66.4%
68.1%
67.2%
66.5%
67.5%
61.6%
67.7%
Lump sum versus four-month split
69.9%
69.8%
67.9%
66.9%
69.6%
61.8%
69.7%
Lump sum versus five-month split
72.6%
70.2%
69.3%
66.5%
71.0%
62.9%
71.7%
Lump sum versus six-month split
73.7%
69.5%
69.7%
65.4%
72.5%
61.8%
72.6%
Source: Vanguard. US data based on Russell 3000 Index, 1979–2022. UK data based on FTSE All-Share Index, 1986–2022. Canadian data based on S&P/TSX Composite Index, 1985–2022. European data based on MSCI Europe Index, 1998–2022. Australian data based on S&P/ASX 300, 1992–2022. Emerging market data based on MSCI Emerging Markets Index, 1988–2022. Global data based on MSCI World Index, 1976–2022.
Should you make a single lump-sum investment or set up regular deposits?
Ultimately there are advantages and disadvantages to both approaches. Lump sum investing tends to outperform when markets do well, but regular deposits can help smooth out market volatility.
There are some other advantages to drip feeding your investments too. For one thing, it enables you to spread your £20,000 ISA allowance across the course of a year (around £1,667 monthly), rather than requiring it up front.
You can also automate the payment on most investment platforms, or set up a direct debit – again, removing the human error factor by preventing you from forgetting to make investments.
However you invest, it is also important to make sure you have a well-diversified portfolio, Prosser suggests carefully considering your time horizon when considering what kinds of assets to hold and invest in.
“Someone closer to retirement may want more stability, while longer-term inventors can afford to take more risk,” he said.
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Dan is a financial journalist who, prior to joining MoneyWeek, spent five years writing for OPTO, an investment magazine focused on growth and technology stocks, ETFs and thematic investing.
Before becoming a writer, Dan spent six years working in talent acquisition in the tech sector, including for credit scoring start-up ClearScore where he first developed an interest in personal finance.
Dan studied Social Anthropology and Management at Sidney Sussex College and the Judge Business School, Cambridge University. Outside finance, he also enjoys travel writing, and has edited two published travel books.
