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It’s one of those good problems to have. Canadians are sitting on an enormous trove of cash – the byproduct of a pandemic savings boom and a precarious economic state.

For four years now, Canadians have been frantically socking away money in bank accounts and, more recently, in term deposits such as guaranteed investment certificates.

Now, having a gigantic cash buffer may feel right. These are crazy times. The pandemic awakened a fear of the kind of disasters that felt relegated to history. More specifically, the threat of a recession, while diminished compared with this time last year, is very much alive.

But we need not turn into cash hoarders. There are nest eggs, and then there is the financial equivalent of stuffing your kitchen cupboards full of stacks of old newspapers.

Over the past four years, Canadians have built up excess savings of close to $400-billion, or 13 per cent of GDP. It’s an enormous backstop, by any standard.

Long-term money belongs in risk assets – a mix of stocks and bonds, generally speaking, which has a very convincing track record of building wealth over many years.

This presents many investors with a dilemma – how best to get their own excess savings into the market at a time when stocks and bonds are quickly picking up speed.

This year is on track to end on a high note. With inflation continuing to head in the right direction, the prospect of interest-rate cuts has invigorated financial markets over the past couple of months.

The Dow Jones Industrial Average notched an all-time high on Tuesday. The S&P 500 index saw eight straight weeks of gains for the first time since 2017. The S&P/TSX Composite Index is having its best run of the year, up by 12 per cent since bottoming out almost two months ago. And long-term government bond yields in Canada and the United States have seen huge moves downward, which translates to higher bond prices.

What is a cash-heavy investor to do? Wait for a better entry point? Ease your money into the market gradually? Either would be a mistake. Research shows that when you have a lump sum to invest, the best move is to do it is all at once, right away.

That would be a pretty abrupt change for those who have been stuffing their money into savings accounts and GICs for the past couple of years.

That wasn’t necessarily a bad play. For the first time in years, you could make money on cash even after inflation. A five-per-cent yield has been a huge draw.

Since February of 2020, Canadians have shovelled about $260-billion in excess savings – that is, savings over prepandemic levels – into term deposits, including GICs. Another $130-billion sits in demand deposits as of the end of October, according to RBC.

Falling interest rates are sure to take a lot of the steam out of the GIC craze.

But just plowing that money into the market might feel a lot like “buying high.” And isn’t that a cardinal sin of investing? Not necessarily.

The alternatives to investing your money in a lump sum are dollar-cost averaging or buying the dip. A few years ago, Benjamin Felix, portfolio manager and head of research at PWL Capital, ran several scenarios comparing the different options.

Buying the dip involves waiting for the market to decline by 10 or 20 per cent before pulling the trigger. But studies consistently show that the gains you forfeit while waiting for the right moment outweigh the benefits of buying low. This is true even when markets are at all-time highs. Across several different countries, Mr. Felix found this approach trails lump-sum investing by a wide margin.

Other investors may choose to deploy their extra cash in increments over a certain period of time, like a year.

But again, the results here are inferior to investing in a lump sum, about two-thirds of the time. The problem is that it is impossible to know ahead of time when dollar-cost averaging would be a more profitable course. Even when markets are high, it loses out most of the time.

“There is a strong statistical argument to avoid dollar-cost averaging unless it is absolutely necessary from a psychological perspective,” Mr. Felix wrote in a report.

Let’s say you put a whack of money into stocks, only for the market to promptly take a nosedive. It’s certainly possible. You’re probably going to feel pretty rotten about your decision, looking at all your money that vanished into thin air.

That doesn’t mean it was the wrong decision. The stock market is a proven growth machine. Tapping into that force should be the motivation and any delays will probably only hurt you in the long run.

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