Should I Invest A Lump Sum Or Monthly? - Teachers Financial Planning (2024)

Ged O'Neil Bell

Should I Invest A Lump Sum Or Monthly? - Teachers Financial Planning (1)

Whether you are retiring this year, still working and trying to boost your savings or already retired and trying to achieve higher returns on your capital, with an uncertain outlook many wonder whether they should be investing as a lump sum or monthly.

This short article explores the options, so you can decide which method best suits you.


The first step is to establish how much you can, or should, invest.

Before considering the investment of a lump sum, you need to make sure you have enough cash in the bank. This should cover at least 3-6 months essential expenditure, or even more if you are self-employed.

You should also avoid investing any money you are going to need in the next five years. While investment values tend to follow an upwards trend, they do fluctuate in the short term. An investment period of less than five years means that you could lose money, as there is less time to smooth out volatility.

If you have more capital than you need for your immediate requirements, you may want to consider investing a lump sum.

If you are just starting to think about investing, monthly savings will probably be more suitable. You still need to make sure you are keeping enough cash aside, or building up an emergency fund as income allows.

A budget with your income and expenditure can help identify how much you can afford to invest each month. Starting to save regularly is a great way of building good financial habits.

Interest and Inflation

Despite recent hikes made by the Bank or England, interest rates are still near the lowest they have ever been. If you are receiving interest on your cash savings, the rate is likely to be poor and certainly losing value in real terms to inflation. There are still good reasons for holding some cash (for example, keeping an emergency fund), but holding large amounts of cash for long periods could leave you worse off financially.

The cost of living rises over time, often at an average rate of 2-3% per year. If you aren’t receiving this amount in interest, you are actually losing money in real terms, as your capital won’t have the same spending power.

If you want your money to keep pace with inflation, investing the money at the earliest opportunity will give you the best chance of this.

Timing the Market

Of course, it is difficult to know when to invest. The market goes up and down on a daily basis, and the news articles about the world economy can be exhausting to follow.

The holy grail of investing is buying low and selling high. The problem is when the market is down, people can be nervous about investing more money. When it is high, it is easy to believe the rising trend will continue.

There is no secret to buying at the right time. Statistics show that over the long term, prices do generally rise. Investing a lump sum successfully depends less on when you invest, and more on the assets you have selected and how long you hold them.

When saving monthly, you don’t really need to worry about market timing, as you are only investing relatively small amounts, and will capture both high and low points.

Pound Cost Averaging

Regular investments benefit from pound cost averaging. This means that you can gain from both high and low points in the market.

When prices go up, your existing investments increase in value. When prices go down, shares become cheaper, so you can buy more for your money.

In a consistently rising market, investing a lump sum will give you the best returns, as it has longer to grow. But real life doesn’t work like that. Even in a strong economy, the market fluctuates daily. Monthly investors are better placed to smooth out this volatility.

A compromise could be to invest your lump sum in stages, for example over six months or a year. This will give you some of the benefits of pound cost averaging, without keeping excessive amounts of cash for too long.

Managing Risk

Whether you are investing a lump sum or a monthly amount, you will need to consider the risk level of your investment.

Investments vary in terms of risk, from cash (low risk and low return) to equities (high risk and high potential return). There is even variation within each asset class, as the shares of an established UK company are likely to behave differently from a start-up in an emerging market.

A younger investor with a 30 year career ahead of them can probably invest in riskier assets than a retired person who is relying on their capital to provide them with an income.

Rather than researching and trading shares on a daily basis, it is simpler, and usually more profitable, to invest in a diversified portfolio which holds a wide variety of different assets.

You do not need to have large amounts of capital to benefit from this. A multi-asset fund can provide all the diversification you need, at a reasonable cost and with low minimum contributions. Even if you are investing monthly, you can diversify your portfolio from day one.


It is often not a straightforward choice between monthly or lump sum investing. The best option will depend on:

  • Whether your investment is coming from capital or income
  • Your investment timescale
  • The amount you have to invest
  • How you feel about investments and risk, including how well you understand financial markets.

Monthly investing may be for you if:

  • You are making regular savings from income
  • You want to build discipline and good financial habits
  • You don’t have a lump sum to invest
  • You would prefer not to invest a large sum in one transaction
  • You can invest for the long term

Investing a lump sum could be the best option if:

  • You have surplus cash on deposit receiving a poor rate of interest
  • You are a confident and experienced investor and can accept fluctuations in value.
  • You are reliant on the fund to provide you with an income.

Please don’t hesitate to contact a member of the team using the short form below to find out more about your investment options.

The value of investments can go down as well as up and you might get back less than you have invested.

The content in this article was correct on 12/08/2023.

You should not rely on this article to make important financial decisions. Teachers Financial Planning offers independent financial advice on savings, pensions, investments, mortgages and mortgages for teachers and non-teachers. Please use the contact form below to arrange an informal chat with an adviser and see how we can help you.

Should I Invest A Lump Sum Or Monthly? - Teachers Financial Planning (2024)


Is it better to invest monthly or lump sum? ›

Investing a lump sum means that you don't have to try to figure out the best time to make periodic investments. You can set up your portfolio and let it grow. A 2021 Northwestern Mutual Life study showed that investing a lump sum generally outperforms dollar-cost averaging over various periods of time.

Is it better to take lump sum or monthly payments? ›

While a pension annuity offers a fixed monthly income, a lump sum can be used for a range of purposes, including for unexpected medical expenses. If you die early, you can potentially receive more money than you would with regular payments. If invested carefully, a lump sum could also offer a passive income.

Is it better to save a lump sum or monthly? ›

In a consistently rising market, investing a lump sum will give you the best returns, as it has longer to grow. But real life doesn't work like that. Even in a strong economy, the market fluctuates daily. Monthly investors are better placed to smooth out this volatility.

Should I take a $44000 lump sum or keep a $423 monthly pension? ›

In most cases, the lump-sum option is clearly the way to go. The main difference between a lump-sum and a monthly payment is that with a lump-sum option, you get to have control over how your money is invested and what happens to it once you're gone. If that's the case, then the lump-sum option is your best bet.

What is the smartest thing to do with a lump sum of money? ›

Build emergency savings

However you choose to invest your lump sum, it may also be a good idea to build an emergency savings pot. Typically, an emergency savings pot should cover about three months' salary and be quickly accessible so that you can use it whenever you need it.

What are the disadvantages of lump sum investment? ›

Higher initial risk: Due to the single, larger investment, lumpsum investors often face higher initial risk. The value of the investment can experience immediate fluctuations, which could lead to substantial gains or losses.

How much does a $300 000 annuity pay per month? ›

Here's how much income a $300,000 fixed annuity might pay per month: $3,517 if you choose single life only, which allows you to receive income for life but does not offer a death benefit to your beneficiaries.

Why do lottery winners choose lump sum? ›

Lump sum payments can also help winners avoid long-term income tax implications. However, those who elect to receive their winnings in annuity payments, or payments that are divided and issued over a fixed period of time, can end up with more in the long run.

Will my monthly payments go down if I pay a lump sum? ›

Will my mortgage payments go down if I pay a lump sum? Your recurring monthly mortgage payment will remain the same even when you submit an additional payment or lump sum unless you recast your loan.

Where is the safest place to put a large sum of money? ›

Storing your lump sum wisely

A savings account is a common choice, offering a secure place to keep your money while earning some interest. There are several types of savings accounts designed to cater to different needs and goals.

Where is the best place to put a lump sum of money? ›

By holding your lump sum in a cash savings account, as opposed to investing it in the stock market, you won't run the risk of your money falling in value just before you need to access it.

How can I double 20K? ›

10 Best strategies to invest $20K
  1. Pay off debt. ...
  2. Build an emergency fund. ...
  3. Max out your retirement accounts. ...
  4. Invest in an index fund. ...
  5. Invest with a brokerage account. ...
  6. Invest with a robo-advisor. ...
  7. Invest in fine art. ...
  8. Invest in real estate.
Mar 14, 2024

What is the 6% rule for lump sum pension? ›

To determine this number, consider the 6% rule: which states that if your monthly pension offer is 6% or more of the lump sum offer, you should choose the perpetual monthly payment option. If the number falls below 6%, you might do as well (or better) by taking the lump sum and investing it yourself.

How much is considered a good monthly pension? ›

As a result, an oft-stated rule of thumb suggests workers can base their retirement on a percentage of their current income. “Seventy to 80% of pre-retirement income is good to shoot for,” said Ben Bakkum, senior investment strategist with New York City financial firm Betterment, in an email.

Should I take a $48000 lump sum or $462 monthly payments for a pension annuity? ›

Lump Sum Value Is Based on Payout Date

Then, at $462 a month and $5,544 annually, you need to reach 8.65 years to have the pension payments break even with a $48,000 lump sum payment. "In this simplified scenario, when the retiree's life expectancy is less than 8.65 years, the lump sum would be preferred," Bryan M.

Is it better to invest every month? ›

The Bottom Line

Investing $100 a month adds up over time, especially with compound interest. Making small sacrifices every day to consistently add $100 to your stock investments every month will benefit you in the long run.

Should I invest money every month? ›

Investing on a regular basis rather than trying to time a lump sum investment can help you become a more disciplined investor. You're forced to invest regardless of whether the price is high or low. This takes some of the emotion out of investing and avoids any delays in putting your money to work.

How much of your income should you invest every month? ›

Experts suggest investing 15% of your income each month, and more if you can afford to. However, if 15% is out of your budget right now, you should still invest what you can afford. Look to reduce your expenses to free up more money and invest more when it's feasible.

Is it good to invest every month? ›

By investing monthly, you can get started with as little as you want, and provided you remain invested over the long-term, you could end up with a decent pot at the end of your investment journey.

Top Articles
Latest Posts
Article information

Author: Ouida Strosin DO

Last Updated:

Views: 5722

Rating: 4.6 / 5 (56 voted)

Reviews: 95% of readers found this page helpful

Author information

Name: Ouida Strosin DO

Birthday: 1995-04-27

Address: Suite 927 930 Kilback Radial, Candidaville, TN 87795

Phone: +8561498978366

Job: Legacy Manufacturing Specialist

Hobby: Singing, Mountain biking, Water sports, Water sports, Taxidermy, Polo, Pet

Introduction: My name is Ouida Strosin DO, I am a precious, combative, spotless, modern, spotless, beautiful, precious person who loves writing and wants to share my knowledge and understanding with you.