Portfolio Deployment: Immediate Deployment or Dollar-Cost Averaging

Investors with substantial uninvested capital face two key decisions: determining the optimal investment strategy for their needs, and deciding when this should be implemented. This article analyses the immediate deployment (or lump-sum investing) and dollar-cost averaging approaches in liquid equity markets and investigates whether it’s possible to improve the outcomes associated with dollar-cost averaging by accelerating deployment on market drawdowns. While both historical and future expected average returns are higher when investments are immediately deployed, the downside risks tend to be higher, particularly over the shorter term. Furthermore, due to behavioural factors such as regret and loss aversion, and the ability to earn greater returns on cash in the current market environment, many investors will find it easier to ‘stay the course’ when tranching their investments over a deployment period.