It's simply having some downside protection for 2-3 years. If stocks make a huge run up, I make some money, but not as much as a lump sum. If stocks tank in that 2-3 years, I beat the lump sum. If stocks tank immediately after 2-3 years, I make less money than the lump sum in the 2-3 years, then lose the same amount as the lump sum. I still have some cushion from whatever I made in 2-3 years.
What happens in 2-3 years such that you no longer need or want downside protection?
The money it made in that 2-3 years is the "protection". I use quotes there because I know it's not really protection any more than the investment return on the increase after a drop is protection. If I invest $1,000,000, by DCA, it increases to $1,100,000 over 2 years, then drops to $900,000 in a 1 day event, it sucks, but I still have $900,000. I'd be bummed out, but not stressing too much because I've seen it make money for 2 years.
If I invest $1,000,000 all at once and it drops to $800,000 the next day, then over 2 years increases to $950,000, I'd be pretty stressed out that one day, and probably a few weeks/months afterward. The result is I have more money with the lump sum, but have to watch myself invest more money than I've made in my lifetime and instantly lose 3 years of my salary in a single day. I'd have the stomach with it for probably a $200,000 investment, but at this point in my life I know I'd be stressed out even though logically it SHOULD work out in the end.
Again, I know it's not logical, and I'll cross that bridge when I come to it, but as of now I'm just not sure I could realistically deal with that sort of market swing with that amount of money without stressing pretty badly over it. After DCAing it in I'd probably calm down a bit as there'd be some ups and downs over the time that I'd hopefully get used to.
Yes, theoretically I should be investing everything in lump sums. So far I have, but I'm dealing with $10-20k investments.
I should also be selling anything I wouldn't buy for the money I could get for it today, yet I don't always do that either. I'm not a perfectly logical robot, although if you asked my girlfriend she might disagree. I know where my limits are, and they'll probably change over time as I get more time and money in the market.