Lump-sum Investing Versus Dollar Cost Averaging

As China’s financial market matures and financial knowledge becomes more and more popular,citizens’ willingness to resist the risk of currency depreciation and increase their wealth through investment and financial management is also even higher.In this context,fund investment as a mature and professional way of financial management is increasingly favored by the majority of investors.There are two methods of fund investment,the traditional one lump-sum,such a method requires investors to study financial knowledge,by choosing the time of entering and selling.The other is the dollar-cost averaging,which is also known as the"lazy investment method" or passive investment strategy,which is considered to be more suitable for junior investors,or investors who is few financial knowledge reserves.First of all,this paper summarizes the relevant theories:passive investment strategy,portfolio theory,cash flow theory.We explore the views in different ways.The passive investment strategy holds that financial markets are unpredictable.In order to get more return but lower risk,The passive investment strategy requires an investor buy and hold for some period of time.The portfolio theory advocates reducing investment risk and obtaining higher investment returns by building an efficient portfolio.By the investors’ opinion,the cash flow theory compares the regular fixed investment strategy with the saving method of set up an automatic withdrawal from your checking account each month.The cash flow theory explains the reasons why the regular fixed investment strategy is favored by investors.Based on the perspective of investors,this paper analyzes the effectiveness of fund investment.We select equity fund and hybrid fund for research.On the basis of the existing theoretical research on regular dollar-cost averaging,the combined method of qualitative analysis and quantitative analysis is used to compare the effectiveness of equity funds and hybrid funds.In the quantitative analysis,this paper randomly selects three funds from each of the two types of funds.Firstly,this paper analyzes the effectiveness of fixed investment of two types of funds,and uses the standard deviation method and the weight adjustment method to quantitatively analyze the risk and return of the two types of funds under the one lump-sum and the dollar-cost averaging.In order to compare the effectiveness of the two types of fixed investment,we use the Sharp Index at the end,which evaluates the performance of six funds in two categories.According to the paper,we draw the following conclusion:First of all,the dollarcost averaging is much better than one lump-sum.Secondly,among the two types of funds,the dollar-cost averaging is more effective for equity funds,and the equity fund performs better under the regular dollar-cost averaging.