Studies show that if you have a significant sum to invest, you are typically better off investing it all at once. Having said that, North American equity markets are currently near historical highs, and the last thing we want to do with a large sum of money is invest it all at once, and then have the market experience a big drop. Even if you know that money invested in equities should be left alone for a minimum of 10 years, and that the market will very likely recover from this drop over the subsequent years.... it just won’t feel good to experience a big loss on paper right out of the chute.
If you have a large sum of money available for investment today, you may wish to consider staggering your purchase of equities over an extended period of time by investing say 20% of the total amount today, and then say 10% of the initial amount every six months until you are fully invested. For example, consider investing as follows:
10% in 6 months
10% in 12 months
10% in 18 months
10% in 24 months
10% in 30 months
10% in 36 months
10% in 42 months
10% in 48 months
Place the money that you are waiting to invest in a high interest savings account so that if the market does experience a 20%-50% tumble during the next few years, you have ready access to cash so that you can increase your buying and scoop up some bargains after prices have dropped.
By phasing in your investment, you can ease your way into equity markets, and allow yourself to stay the course in the event of a near term market drop, as well as create the opportunity to buy equities after a significant market sell off. You know, just like buying that pair of shoes you have been coveting while they are on sale!