Within-horizon exposure to loss for dollar cost averaging and lump sum investing

Abstract

Based on a statistic known as "first-passage time probability" that accounts for exposure to loss during the entire investment horizon, it is shown that dollar cost averaging relative to lump sum investing can significantly reduce the probability, magnitude, and duration of enduring a large loss. This is especially relevant to investors with minimum loss thresholds, possible interim withdrawal needs, changing asset allocations, and/or an uncertain retirement date. For investing in stocks with a 5-year horizon, the probability of enduring a loss can be reduced from over 90% to less than 50%, the dollar amount of the conditional expected shortfall can be reduced by 65%, and the expected time one may have to endure a loss is reduced from 1.5 years to 4 months.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 19 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.