Lump Sum Investing vs. Dollar Cost Averaging (as a Long Term Investor)
I think you're not applying the right time scale here. ESPP (Employee Stock Purchase Plan) is usually vesting every 6 months. So every half a year you receive a chunk of stocks based on your salary deduction, with the 15% discount. Every half a year you have a chunk of money from the sale of these stocks that you're going to put into your long term investment portfolio. That is dollar cost averaging. You're investing periodically (every 6 months in this case), same (based on your salary deferral) amount of money, regardless of the stock market behavior. That is precisely what dollar cost averaging is.
"Trying to ""time the market"" is usually a bad idea. People who do this every day for a living have a hard time doing that, and I'm guessing you don't have that kind of time and knowledge.  So that leaves you with your first and third options, commonly called lump-sum and dollar cost averaging respectively.   Which one to use depends on where your preferences lie on the risk/reward scpectrum. Dollar cost averaging (DCA) has lower risk and lower reward than lump sum investing. In my opinion, I don't like it. DCA only works better than lump sum investing if the price drops. But if you think the price is going to drop, why are you buying the stock in the first place? Example: Your uncle wins the lottery and gives you $50,000. Do you buy $50,000 worth of Apple now, or do you buy $10,000 now and $10,000 a quarter for the next four quarters? If the stock goes up, you will make more with lump-sum(LS) than you will with DCA. If the stock goes down, you will lose more with LS than you will with DCA. If the stock goes up then down, you will lose more with DCA than you will with LS. If the stock goes down then up, you will make more with DCA than you will with LS. So it's a trade-off. But, like I said, the whole point of you buying the stock is that you think it's going to go up, which is especially true with an index fund! So why pick the strategy that performs worse in that scenario?" 1) The risks are that you investing in financial markets and therefore should be prepared for volatility in the value of your holdings. 2) You should only ever invest in financial markets with capital that you can reasonably afford to put aside and not touch for 5-10 years (as an investor not a trader). Even then you should be prepared to write this capital off completely. No one can offer you a guarantee of what will happen in the future, only speculation from what has happened in the past. 3) Don't invest. It is simple. Keep your money in cash. However this is not without its risks. Interest rates rarely keep up with inflation so the spending power of cash investments quickly diminishes in real terms over time. So what to do? Extended your time horizon as you have mentioned to say 30 years, reinvest all dividends as these have been proven to make up the bulk of long term returns and drip feed your money into these markets over time. This will benefit you from what is known in as  'dollar cost averaging' and will negate the need for you to time the market. "Both explanations are partly true. There are many investors who do not want to sell an asset at a loss.  This causes ""resistance"" at prices where large amounts of the asset were previously traded by such investors.  It also explains why a ""break-through"" of such a ""resistance"" is often associated with a substantial ""move"" in price. There are also many investors who have ""stop-loss"" or ""trailing stop-loss"" ""limit orders"" in effect.  These investors will automatically sell out of a long position (or buy out of a short position) if the price drops (or rises) by a certain percentage (typically 8% - 10%). There are periods of time when money is flowing into an asset or asset class.  This could be due to a large investor trying to quietly purchase the asset in a way that avoids raising the price earlier than necessary.  Or perhaps a large investor is dollar-cost-averaging.  Or perhaps a legal mandate for a category of investors has changed, and they need to rebalance their portfolios.  This rebalancing is likely to take place over time.  Or perhaps there is a fad where many small investors (at various times) decide to increase (or decrease) their stake in an asset class.  Or perhaps (for demographic reasons) the number of investors in a particular situation is increasing, so there are more investors who want to make particular investments.  All of these phenomena can be summarized by the word ""momentum"". Traders who use technical analysis (including most day traders and algorithmic speculators) are aware of these phenomena.  They are therefore more likely to purchase (or sell, or short) an asset shortly after one of their ""buy signals"" or ""sell signals"" is triggered.  This reinforces the phenomena. There are also poorly-understood long-term cycles that affect business fundamentals and/or the politics that constrain business activity.  For example: Note that even if the markets really were a random walk, it would still be profitable (and risk-reducing) to perform dollar-cost-averaging when buying into a position, and also perform averaging when selling out of a position.  But this means that recent investor behavior can be used to predict the near-future behavior of investors, which justifies technical analysis." All you have to do is ask Warren Buffet that question and you'll have your answer! (grin)  He is the very definition of someone who relies on the fundamentals as a major part of his investment decisions. Investors who rely on analysis of fundamentals tend to be more long-term strategic planners than most other investors, who seem more focused on momentum-based thinking. There are some industries which have historically low P/E ratios, such as utilities, but I don't think that implies poor growth prospects.  How often does a utility go out of business?   I think oftentimes if you really look into the numbers, there are companies reporting higher earnings and earnings growth, but is that top-line growth, or is it the result of cost-cutting and other measures which artificially imply a healthy and growing company?  A healthy company is one which shows year-over-year organic growth in revenues and earnings from sales, not one which has to continually make new acquisitions or use accounting tricks to dress up the bottom line. Is it possible to do well by investing in companies with solid fundamentals?  Absolutely.  You may not realize the same rate of short-term returns as others who use momentum-based trading strategies, but over the long haul I'm willing to bet you'll see a better overall average return than they do. If you are investing for 10 years, then you just keep buying at whatever price the fund is at. This is called dollar-cost averaging. If the fund is declining in value from when you first bought it, then when you buy more, the AVERAGE price you bought in at is now lower. So therefore your losses are lower AND when it goes back up you will make more. Even if it continues to decline in value then you keep adding more money in periodically, eventually your position will be so large that on the first uptick you will have a huge percent gain. Anyway this is only suggested because you are in it for 10 years. Other people's investment goals vary. Lets imagine two scenarios: 1) You make 10.4k (40% of total income) yearly contributions to a savings account that earns 1% interest for 10 years. In this scenario, you put in 104k and earned 5.89k in interest, for a total of 109.9k. 2) You make the same 10.4k yearly contribution to an index fund that earns 7% on average for 10 years. In this scenario you put in the same 104k, but earned 49.7k in interest*, for a total of 153.7k. The main advantage is option 1) has more liquidity -- you can get the money out faster. Option 2) requires time to divest any stocks / bonds. So you need enough savings to get you through that divestment period. Imagine another two scenarios where you stop earning income: 1-b) You stop working and have only your 109.9k principal amount in a 1% savings account. If you withdraw 15.6k yearly for your current cost of living, you will run through your savings in 7 years. 2-b) You stop working and have only 20k (2 years of savings) in savings that earns 1% with 153.7k in stocks that earns 7%. If you withdraw your cost of living currently at 15.6k, you will run through your investments in 15 years and your savings in 2 years, for a total of 17 years. The two years of income in savings is extremely generous for how long it starts the divestment process.  In summary, invest your money. It wasn't specified what currency we are talking about, but you can easily find access to an investment company no matter where you are in the world. Keep a small amount for a rainy day. Dollar-Cost averaging will allow you to reduce your risk while the stock prices falls provided: You must invest a fixed amount $X on a fixed time scale (i.e. every Y days). By doing this you will be able to take advantage of the lowering price by obtaining more shares per period as the price falls. But at the same time, if it starts to rise, you will already have your pig in the race.  Example: Suppose you wanted to invest $300 in a company. We will do so over 3 periods. As the price falls, your average dollar cost will as well. But since you don't know where the bottom is, you cannot wait until the bottom. By trying to guess the bottom and dumping all of your investment at once you expose yourself to a higher level of risk. Do not use a stop loss order as a long-term investor.  The arguments in favor of stop losses being presented by a few users here rely on a faulty premise, namely, that there is some kind of formula that will let you set your stop such that it won't trigger on day-to-day fluctuations but will trigger in time to protect you from a significant loss in a serious market downturn.  No such formula exists.  No matter where you set your stop, it is as likely to dump you from your investment just before it begins climbing again as it is to shield you from continued losses.  Each time that happens, you will have sold low and bought high, incurring trading fees into the bargain.  It is very unlikely that the losses you avoid in a bear market (remember, you still incur the loss up until your stop is hit; it's only the losses after that that you avoid) will make up the costs of false alarms. On top of that, once you have stopped out of your first investment choice, then what?  Will you reinvest in some other stock or fund?  If those investments didn't look good to you when you first set up your asset allocation, then why should they look any better now, just because your primary investment has dropped by some arbitrary[*] amount?  Will you park the money in cash while you wait for prices to bottom out?  The market bottom is only apparent in retrospect.  There is no formula for calling it in real time. Perhaps stop loss orders have their uses in active trading strategies, or maybe they're just chrome that trading platforms use to attract customers.  Either way, using them on long-term investments will just cost you money in the long run.  Forget the fancy order types, and manage your risk through your asset allocation.  The overwhelming likelihood is that you will get better performance, and you will spend less time worrying about your investments to boot. [*] Why are the stop levels recommended by the formulae invariably multiples of 5%?  Do the market gods have a thing for round numbers?