Lump Sum Investing Guide for 2024

Investing is an essential tool for growing your assets and taking charge of your personal finances, but there isn’t a class in medical school that teaches you how to do it.

Many Americans get into investing by contributing whatever funds they have left after budgeting for their living expenses, but some medical professionals have a windfall that allows them to invest a lump sum at one time.

Investing a Lump Sum of Money

If you received a bonus, an inheritance, or a large sum of money from some other source – you may be asking yourself what to do with it. Most people will tell you to invest it but give little guidance about where or how.

Lump Sum Investing vs. Dollar-Cost Averaging

If you have a large sum of money to invest, consider both the lump sum investing vs. dollar-cost averaging approach.

Lump Sum Investing

Lump-sum investing carries the risk of loss if the market takes a turn, and you may experience regret if you haven’t thoroughly researched your investment decisions.

Dollar-Cost Averaging

Dollar-cost averaging, or the slow and steady approach, allows you to invest in increments––usually monthly.

This method can minimize the initial financial burden of making a significant investment and reduce short-term losses, but it also carries risks.

With dollar-cost averaging, you could lose purchasing power due to inflation or pay a higher price for the same assets if they perform well.

You may already be dollar-cost averaging through an employer-sponsored 401(k), 403(b), or other retirement plan.

Which Strategy is Best?

The right investment strategy for your needs will depend on your risk tolerance, market conditions, and several other nuanced factors, so discussing your options with a fiduciary financial advisor can be a good idea.

How to Invest a Lump Sum of Money

If you’ve decided lump-sum investing is the best strategy for your personal finances, let’s dive into the best practice for investing a large sum of money.

1. Let Your Retirement Plan Inform Your Investment Strategy

Most people invest to pursue financial independence or an early retirement. Consider your current investment accounts, including individual retirement accounts (IRAs) and brokerage accounts.

Map out your retirement living expenses, various income streams, and the lifestyle you hope to have. Being honest about your current situation and future goals can help you craft an investment plan that allows you to maintain––or improve––your standard of living throughout your retirement.

Contributing a lump sum to your retirement account gives it maximum time to grow while you continue working. You may even choose to keep dollar-cost-averaging through your paycheck or other income streams.

If you haven’t been diligent about retirement savings, investing a lump sum in a tax-advantaged account can also reduce your income tax liability. Just make sure you’re mindful of contribution and catch-up limits.

2. Consider Debt

Medical school is expensive and so is the cost of living. Take an honest inventory of your debt and consider paying off high interest debt. If you have significant student loans, you may want to pay these off if they are inflating your debt-to-income ratio and you have goals of homeownership.

If you have high interest credit card debt, consider paying it off in one fell swoop if the interest rate on the balance outpaces annualized returns for your investments.

3. Avoid Market Timing, but Consider Past Performance

Market volatility is a fact of investing. Some investors seek to minimize risk by investing in increments, but it can reduce overall returns if you’re too conservative. As a general rule, we recommend avoiding market timing if you have the funds to invest all at once.

You can look at historical performance data and trends to make an informed choice about your investments but don’t make a habit of trading in excess or pulling money out of the market.

The longer your money stays in the market, the higher returns you can earn.

4. Be Mindful of Your Asset Allocation

If you come into a large amount of money, you may be tempted to invest the entire amount in one place. We caution you against this impulse. There are many rules of investing, but the most salient is always make sure you have a diversified portfolio.

A diversified portfolio has funds spread out across different asset classes to spread out the risk. Consider playing the stock market in different ways by purchasing bonds, exchange-traded funds (ETFs), mutual funds, real estate investment trusts (REITs), and other profitable investment vehicles that align with your values.

5. Set a Clear Time Horizon

If you want to find the best places to invest a lump sum, you’ll need to determine how long you can afford to leave that money in the market without touching it. Long-term investors will have different goals than someone saving for a short-term expense.

The good thing about maintaining a diversified portfolio is that different assets will mature at different times, so you’ll be able to recalibrate your investment goals or access invested funds.

Your time horizon will inform the best investment products for your needs.

6. Work with a Financial Advisor

If there’s one thing we can stress in this article, let it be this: you don’t have to invest alone. There are financial professionals who have gone through rigorous certification programs and earned high-level degrees to develop the expertise necessary to analyze the market and make profitable decisions.

You can work with a financial advisor to assess your risk tolerance, and desired time horizon, and find investment products that match your needs. Financial advisors come in many forms as well.

You can hire a flat-fee consultant to review your current financial situation and help you set a plan for a particular goal or you can hire a fee-based advisor who charges a percentage of the assets under their management (AUM) over time.

Either way, we recommend choosing a financial advisor who upholds the fiduciary duty, so you can avoid potential conflicts of interest for any investment products they recommend.

Reputable financial advisors will be transparent about their fee structure, credentials, and any standards they’re bound to.

Pros and Cons of Lump-Sum Investing

Lump-sum investing has advantages and disadvantages. Let’s review the pros and cons so you can maximize your returns.


  • Higher returns than keeping money in a savings account
  • Fewer transaction fees than dollar-cost averaging
  • Don’t have to budget for incremental investments
  • The entire amount earns interest sooner
  • Studies show lump sums outperform dollar-cost-averaging investment strategies


  • More exposed to risk if there’s a downturn in the market
  • May be locked in at a higher price than if you purchased in increments

Frequently Asked Questions

Is there a limit to how much I can invest at one time?

No, there isn’t a limit to how much you can invest at one time, but there may be limits on your tax write-offs or how much you can purchase of a particular investment product. Consult a financial advisor or tax professional to expand your knowledge of applicable limits.

Which is better: lump sum investing or dollar-cost-averaging?

In general, lump sum investing earns higher returns than dollar-cost-averaging when you assume all funds are invested in the stock market. However, dollar-cost-averaging outperforms cash held in savings accounts, so you should still invest incrementally even if you can’t afford to put in a lump sum at one time.

Are there any tax advantages of lump sum investing?

There may be tax advantages of lump sum investing if you put your money in a tax-efficient account, such as a 401(k) or IRA. Tax-efficient accounts may be subject to contribution limits, so it’s important to be mindful of these limits to avoid excess penalties.

Should You Consider Lump-Sum Investing?

As you begin considering which investment options might be right for you, start by reviewing your budget and current financial plan.

Whatever you decide to do with your windfall, remember to seek options that keep fees low. Generally, investing a lump sum reduces commission and transaction fees compared to dollar-cost-averaging investment strategies.

It never hurts to touch base with a financial advisor, especially if you are considering investing money in unfamiliar products.

Remember, there is no such thing as a sure thing, regardless of how you invest your money.

There is only risk and tolerance to it. Even putting money into a savings account has a small risk, but you could also recontextualize this risk as an opportunity. You will need to consider your capacity for risk to truly invest the money and help it grow.

The best part is that you can decide what to do with your money. This is a wonderful problem to have. If you have a five-digit chunk of change ready to be invested, don’t decide overnight what you’ll do with it.