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What is the best investment strategy: invest all at once or break it up into parts?
My bet was that the all-at-once strategy is more profitable while splitting out is less risky.
So I created a page with a simulation to prove it right or wrong.
The results were surprising ⤵️
I took daily S&P 500 data from the very beginning and then simulated how these two strategies performed based on ALL POSSIBLE start dates.
A total of 15,867 trading days
Investment duration: 5, 10, 15, ... 30 years
The All At Once strategy simply puts all the money into play on day one.
On average, it should be a winner because the money stays in the market longer, and the market is going up on average - you know, the "time in the market beats timing the market" thing.
But it also should be a more risky one. What if you invested all your money on that one bad day before the crash?
The Split Out strategy is to split the money into 12 equal parts and invest iteratively every month.
I expected this to have a lower return but be less risky because it is unlikely that all 12 dates will be "bad" days.
All at once = better return, Split out = less risk. That's what I used to think, and that's the thinking I've seen most often.
But in fact, my simulation shows that the All At Once strategy performed better 70% of the time, without being any more risky!
There must be a mathematical explanation for this, but I don't have one yet. Wyt?
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