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Halloween offers a candy windfall to children across the country. It’s the one night of the year when they can dash from door to door to collect a bounty of chocolates, chips and other confections.

Windfalls for grownups usually aren’t as sweet. They arrive in the form of cash from bonuses, gifts, inheritances and the like. They’re best used to fund retirements and help achieve financial independence.

But investing a big cash windfall is easier said than done. Not only do you have to pick what to invest in, you have to figure out how quickly you want to put the money to work.

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Ritholtz Wealth Management’s Nick Maggiulli explored the second half of the problem for a U.S. audience in a couple of recent articles. His analysis favours investing it all immediately rather than doing so slowly over time. I naturally wondered whether the same thing held true from a Canadian point of view.

To find out, I started with the global couch potato portfolio as a solid investment benchmark. It invests 40 per cent of its assets in the Canadian Universe Bond Index, 20 per cent in the S&P/TSX Composite Index, 20 per cent in the S&P 500 and 20 per cent in the MSCI EAFE.

It’s easy to calculate the returns generated by investing all at once.

Investing gradually is modelled using a simple dollar-cost-averaging (DCA) technique, where the cash windfall is split into 12 equal pieces.

One piece is invested immediately in the global couch potato portfolio, with additional pieces invested each month thereafter. The cash earns the same return as three-month Canadian Treasury bills while it’s waiting to be invested.

(My calculations use non-hedged indexes, include reinvested distributions, employ monthly rebalancing and do not include fees or commissions.)

I calculated the returns of investing all at once versus the DCA technique starting each month from the beginning of 1980 through to the middle of 2017. The span includes 451 overlapping 12-month periods.

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The odds heavily favoured Canadians who immediately invested the whole cash windfall. They beat the DCA approach in roughly 69 per cent of the periods and outperformed by 2.2 percentage points a year on average. (The accompanying graph shows the difference in returns.)

Mr. Maggiulli observed that investors using the DCA approach outperformed during market crashes, but he pointed out that it’s hard to imagine risk-averse investors actually buying during downturns. After all, buying each and every month in 2008 would have been more frightening than taking up residence in a haunted house.

Mind you, the mere fact that the odds favour the bold is also unlikely to calm nervous investors. They might compromise by deploying their money immediately, but in a more conservative manner than they would otherwise.

For instance, those who want to own a standard 60-per-cent-stock and 40-per-cent-bond portfolio might begin immediately but more cautiously with a 40-per-cent-stock and 60-per-cent-bond portfolio. If that’s too risky, a 20-per-cent-stock and 80-per-cent-bond portfolio might do the trick.

These days, it’s easy to buy low-cost balanced index funds that fit all sorts of risk profiles. Risk-averse investors can park their money in the Vanguard Conservative Income ETF (VCIP-T), which aims for a 20-per-cent-stock and 80-per-cent-bond allocation. Others might use the Vanguard Balanced ETF (VBAL-T), which aims for a more standard 60-per-cent-stock and 40-per-cent-bond allocation. Risk seekers can opt for the Vanguard Growth ETF (VGRO-T), which limits its bond allocation to just 20 per cent.

Much like children hunting for treats on Halloween, investors usually get more by starting early. But cautious investors can still move quickly while shielding themselves from some of the downside risk by opting for more conservative portfolios.

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Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.

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