Dollar-Cost Averaging Versus Lump-Sum Investing in High-Inflation Periods

Lump-sum investing (LSI) is usually found to dominate dollar-cost averaging (DCA), because immediate investment captures the risk premium sooner. That conclusion, however, rests on pooled samples that do not treat inflation as a conditioning state. Using monthly U.S. data from 1941 to 2025, we classify inflation regimes by quantiles of 12-month CPI inflation and compare real terminal wealth for the S&P 500 and 10-Year Treasuries over 6-, 12-, and 24-month horizons. In high-inflation windows, DCA yields higher average real terminal wealth and a higher win rate for both assets, but the advantage is statistically significant only for Treasuries; no S&P 500 difference is significant at the 5% level. LSI significantly outperforms DCA in low-inflation windows for both assets and in medium-inflation windows for equities, while the medium-inflation Treasury difference is indistinguishable from zero. A ten-year rolling simulation shows an inflation-conditioned rule strongly beating constant DCA and tying constant LSI overall, with a small but significant advantage over LSI when the rule is evaluated in real time using a recursively estimated threshold. The operative mechanism is not the variance channel usually invoked for DCA but asset returns relative to cash, which explains why the effect concentrates in fixed income.