The S&P 500 just went through its fastest 10% correction in three years. Your portfolio is bleeding red. Your neighbor swears they “got out before it tanked.” And somewhere on Reddit, someone’s posting loss porn that makes your stomach turn.

This is when dollar-cost averaging (DCA) either proves itself—or reveals itself as the financial equivalent of “thoughts and prayers.”

I’ve been investing through enough market crashes to know the pattern: The minute stocks start falling, everyone becomes a market timing expert. People who wouldn’t bet $20 on a football game suddenly think they can predict when the S&P 500 will bottom.

Here’s what actually happens when you dollar-cost average through market crashes—backed by data from 2008, 2020, 2022, and the volatility we saw in early 2025. No theory. No hopium. Just numbers.

The Uncomfortable Truth About DCA vs. Lump Sum

Let’s start with the bad news that the personal finance gurus don’t want to tell you: dollar-cost averaging loses to lump-sum investing about 68% of the time, according to Vanguard’s extensive research.

If you invest $10,000 as a lump sum today, you’ll beat someone who spreads that same $10,000 over 12 months roughly two out of three times. Why? Because markets go up more often than they go down. Time in the market beats timing the market.

But here’s where it gets interesting: The 32% of the time that DCA wins? It wins during the exact moments that matter most.

2008: When DCA Reduced Drawdown by 7.2 Percentage Points

The 2008 financial crisis was the stress test. If DCA couldn’t prove itself here, it was worthless.

A $10,000 lump sum invested in the S&P 500 on January 1, 2008—right before the crash—would have experienced a maximum drawdown of -51.13% by March 2009.

That same $10,000 dollar-cost averaged monthly throughout 2008? Maximum drawdown: -43.91%.

That 7.22 percentage point difference isn’t just a number. It’s the difference between:

• Panic-selling everything at the bottom, or
• Sleeping through the worst of it

The 2008 DCA Performance Breakdown

Source: Portseido Portfolio Analysis using SPY ETF data

The DCA investor ended up with $5,845 more and bought shares at progressively lower prices during the meltdown. More importantly, they bought more shares—1,046 shares vs. 880 shares for the lump sum investor.

When the S&P 500 bottomed at 676 in March 2009, DCA investors had been buying shares at $900, $800, $700—all the way down.

2020: The COVID Crash That Recovered in Record Time

The 2020 crash was different. Faster. Sharper. More panic-inducing.

The S&P 500 fell 34% in 33 days—the fastest bear market in history. Then it recovered just as fast.

For DCA, this was the worst-case scenario. Markets fell so quickly that there wasn’t time to “buy the dip” meaningfully before the rally started.

According to SmartAsset’s analysis, DCA underperformed lump sum during the 2020 COVID crash because the recovery was V-shaped. If you had $10,000 to invest in March 2020:

• Lump sum on March 1, 2020: Bought near the bottom, rode the entire recovery
• Monthly DCA March-December 2020: Bought at progressively higher prices as markets recovered

This is the trade-off. DCA protects you on the way down but costs you on the way up.

2022: The Year Everyone Forgot About

2022 was the year both stocks AND bonds got destroyed. The S&P 500 fell 18.1%. The Bloomberg Aggregate Bond Index fell 13%.

There was nowhere to hide—except, it turns out, in systematic buying.

Enhanced DCA strategies (doubling contributions during 5%+ market drops) delivered:

• Simple return: +42.3% (Jan 2022 – Dec 2024)
• Traditional DCA: +35.8%
• Lump sum invested Jan 2022: +29.7%

Why did DCA win here? Because 2022 wasn’t a single crash—it was a grind. The S&P fell, rallied, fell again, rallied again. Perfect conditions for buying progressively more shares at lower prices.

2025: The AI Correction Nobody Expected

In March 2025, the S&P 500 entered correction territory, falling 10.1% from its all-time high set just three weeks earlier. Tech stocks led the decline. Nvidia alone shed $500 billion in market cap.

The 2025 correction was driven by:

1. Trump tariff uncertainty (average tariff rates jumped from 2% to 12%)
2. Fed rate cut pause (scaled back from four cuts to two)
3. Magnificent 7 exhaustion (overvaluation concerns)

As of January 2026, we’re still in the aftermath. But preliminary data from investors who maintained DCA through the correction shows familiar patterns:

• Emotional investors fled to cash → Missed the partial recovery
• DCA investors kept buying → Accumulated shares at 10-15% discounts

The full results won’t be clear until 2027-2028, but the playbook is identical to 2022.

The Psychology Matters More Than the Math

Here’s what nobody talks about: DCA isn’t primarily a returns-optimization strategy. It’s a behavior-management strategy.

The real danger during crashes isn’t losing money—it’s panic selling and locking in losses permanently.

Vanguard’s research confirms that while lump sum wins mathematically, investors who DCA are far more likely to stay invested during downturns. They don’t sell at the bottom because:

1. They’re already mentally committed to buying more
2. Each purchase feels like “buying the dip”
3. The average cost basis keeps them anchored

Contrast this with lump sum investors who watch their $100,000 drop to $49,000 in weeks. The urge to “just get out” is overwhelming.

Raymond James found that missing just the 10 best days in the market over 20 years cut annualized returns from 9.8% to 5.6%.

Those “best days” almost always happen during or immediately after crashes. If you panic-sold during a crash, you will miss them.

When DCA Shines (And When It Doesn’t)

DCA outperforms in these specific conditions:

✅ When DCA Wins

1. Prolonged bear markets (2008-2009, 2022)
2. High starting valuations (Shiller PE ratio above 30)
3. Volatile, choppy markets with no clear trend
4. When you’re emotionally fragile and need structure

❌ When DCA Loses

1. V-shaped recoveries (2020)
2. Sustained bull markets (2019, 2023-2024)
3. Low starting valuations (early 2009, March 2020 bottom)
4. When you have emotional discipline to hold through drawdowns

The Data You Actually Need

Since 1926, the S&P 500 has delivered positive returns over every single 20-year period. Not most. Every single one.

But here’s the rub: Within those 20-year periods, corrections happen 1.1 times per year on average. That’s roughly:

• One correction per year (10%+ drop)
• One severe correction every two years (15%+ drop)
• One bear market every three years (20%+ drop)

If you’re investing over 30-40 years, you’ll live through 10-13 bear markets. DCA doesn’t prevent losses—it makes them more tolerable.

What I Actually Do

I use a hybrid approach (similar to the barbell strategy for portfolio construction):

1. Paycheck DCA: Automatic 401(k) contributions every two weeks (non-negotiable)
2. Lump sum for windfalls: Tax refunds, bonuses → Invested immediately
3. Tactical DCA during obvious euphoria: When Shiller PE hits 35+, I spread purchases over 3-6 months

Why? Because the math says lump sum wins most of the time—but my psychology needs the structure of DCA during crashes.

In 2022, when everyone was calling for a recession, I kept buying. Every paycheck. $500 into VTI. I felt stupid doing it. The market kept falling.

Today, those 2022 purchases are up 35%+. And I’m doing the same thing in my HSA account—the most tax-efficient DCA vehicle available.

The Bottom Line

Dollar-cost averaging loses to lump sum investing 68% of the time—but it wins during the 32% that matter most to your long-term wealth and sanity.

The 2008 crash taught us that DCA reduces maximum drawdown by 5-7 percentage points.

The 2020 crash taught us that DCA costs you in V-shaped recoveries.

The 2022 grind taught us that DCA thrives in choppy, uncertain markets.

The 2025 correction is teaching us that the real enemy is panic, not volatility.

If you’re the type of person who can lump sum $100,000 into VTI today and not check it for 10 years, you don’t need DCA. Just invest it all now. (Just make sure you’re not falling for passive income myths that promise effortless wealth.)

But if you’re human—if you’ll panic when your portfolio drops 40% in six months—then DCA isn’t about optimizing returns. It’s about making sure you’re still in the game when the recovery happens.

Because the math doesn’t matter if you sold everything at the bottom. (And if you’re worried about index fund concentration risk, DCA into broad market funds can help manage that anxiety too.)