Dollar-cost averaging is an investment strategy where you divide your total investment amount into equal portions and invest those portions at regular intervals over time. For example, instead of investing $12,000 at once, you might invest $1,000 every month for a year.

This approach means you'll buy more shares when prices are low and fewer shares when prices are high, potentially lowering the average cost per share compared to making a single purchase that might occur at a market high. DCA is primarily a risk management strategy that reduces the impact of volatility and the potential regret of poor market timing.

While lump sum investing has historically outperformed DCA about two-thirds of the time (when markets are generally rising), there are several valid reasons why investors might still choose DCA:

• Psychological comfort: DCA reduces anxiety about investing at the "wrong time" and can help investors avoid abandoning their strategy during volatility
• Risk management: DCA reduces the risk of substantial short-term losses that can occur with lump sum investing
• Market conditions: During periods of high valuation or market uncertainty, DCA can provide better risk-adjusted returns
• Behavioral benefits: DCA creates a disciplined investment habit that can be beneficial for long-term investing success

For many investors, the psychological benefits of DCA outweigh the potential mathematical advantage of lump sum investing. Having a strategy you can stick with consistently is often more important than optimizing for maximum theoretical returns.

SCHD's dividend yield (currently 3.91%) enhances the mathematical advantage of lump sum investing in several ways:

• Immediate income: With lump sum investing, your entire investment begins generating dividend income immediately
• Dividend compounding: If reinvesting dividends, the full amount compounds from day one
• Cash drag reduction: The dividend yield reduces the opportunity cost of holding cash during a DCA period

For an ETF like SCHD with a meaningful dividend yield, the "time in the market" advantage of lump sum investing is amplified compared to growth-focused investments with minimal dividends. With DCA, a portion of your money remains in cash longer, missing out on dividend payments that could have been earned with a lump sum approach.

Research suggests that shorter DCA periods generally produce better results than longer ones, as they reduce the "cash drag" effect while still providing some risk management benefits:

• 3-6 months: Often considered the optimal timeframe for most investors, balancing risk reduction and return potential
• Under 12 months: Generally recommended for most market conditions
• 12+ months: Only recommended during periods of extreme market valuation or volatility

The optimal frequency depends on several factors:

• For smaller amounts: Weekly or bi-weekly investments can reduce the impact of short-term volatility
• For larger amounts: Monthly investments may be more practical from a transaction and management perspective

Remember that the longer your DCA period, the closer your expected returns will be to historical market averages, but the greater your opportunity cost during rising markets.

Technically, true dollar-cost averaging refers to taking a lump sum you already have available and deliberately spreading its investment over time. Investing regularly from your income (such as monthly 401(k) contributions) is more accurately called "periodic investing" or "systematic investing."

The key distinction:

• True DCA: You have $12,000 available today but choose to invest $1,000 monthly over a year instead of all at once
• Periodic investing: You earn $1,000 per month and invest it as you receive it

While both approaches involve investing fixed amounts at regular intervals, the comparison with lump sum investing only applies to true DCA, where you're making an active choice to delay investing money you already have. Periodic investing from your income is generally considered a best practice regardless of the lump sum vs. DCA debate, as it's simply investing money as it becomes available.