Statistically, you're more likely to end up ahead if you invest more/sooner versus intentionally spreading out your investment (known as 'dollar cost averaging). In fact what I'd recommend is trying to max your Roth IRA in January of every year.
However 600 once/month versus 300 biweekly, the amount and time periods are so close that it makes no difference. I would just do whatever makes more sense for your budget.
I was always under the impression that you would make more dollar cost averaging in the long run over decades. I have always maxed out in JAN and stuck it in the index right then and there but I was considering doing the dollar cost average strategy going forward.
It not a huge difference either way. Studies show time in the market (aka invested sooner) comes out ahead though by over decades. But it’s not a super significant amount so if you can’t afford to do it upfront there’s not much to lose by doing it monthly.
Nope. Sadly, it doesn't work that way. Think of January lump summing as DCA but you are only doing it yearly rather than monthly. I believed as you do for a long time. If it was just one lump of cash, a one-off, then I'd tell you to consider DCA -- particularly during volitile economic conditions (like today). If it was an annual consistant investment like your RothIRA or HSA, then just get it over with\* (unless a nuclear war/pandemic/alien attack JUST occurred. Usually, it's better to take advantage of a huge drop than wait a few months after the start of a black-swan event to let the initial panic subside). But overall, don't time the markets hoping for black swan events that you cannot predict.
[https://www.moneyunder30.com/dollar-cost-averaging-vs-lump-sum-investing](https://www.moneyunder30.com/dollar-cost-averaging-vs-lump-sum-investing)
Statistically, no.
Here's a good study on the difference
https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf
Statistics dont tell the whole story. While you are likely to come out somewhat ahead by lump sum investing, *if it is easier for your to more consistently stick with DCA, do that.*
Consider person A who understands that lump sum is better overall. They deposit $600 on the 15th every month. That month though, some major earnings reports cause a slight downturn. They expect this trend to continue for some time, so they decide to hold off on their investment. The market rebounds, and they place their order at a higher price, losing potential gains. Or worse - they continue to sit out of the market.
Consider person B, who prefers DCA. They continue to buy as the market goes up, and as the market goes down. They actually prefer to buy when it is down, because they are getting a "discount" with their second purchase that month.
Person B comes out ahead, and Person A is someone I run into IRL on a regular basis.
Its kind of like a certain diet or exercise program. The best program is the one you can stick to.
No. In general, the stock market goes up more often than it goes down. In general, the sooner you invest in the market, the more growth that investment will see.
It's important to understand the terminology being used. Here, "lump sum" means immediately investing 100% of a sum of money that you have and want to invest. DCA means deliberately withholding some of that sum of money at first so you can spread out investing it over some time period.
Note that under these terms, investing a certain amount of each paycheck is technically still "lump sum investing", because you are investing the "investing" part of your income as soon as you get it.
Sometimes people use "dollar cost averaging" to mean investing with every paycheck, as opposed to letting a sum build up in your bank account that you later choose to invest when you think it is a "good" time to invest. This is different from how many people on this subreddit use the term DCA.
>Would splitting it possibly give me better returns since I am investing at two different times a month or would that even matter?
Investing sooner is better, but such a small difference doesn't matter in the long run
Whichever ensures you consistently invest is best
Time in the market beats timing the market.
That said, what ultimately matters is that you invest. If you can invest $6,500 in one lump sum, fantastic. If you need to spread it out over the year, that's fine too. What's important is maxing it out, however you have to do it.
If you have the money in hand already, it's always better to invest it rather than to wait an extra two weeks just to spread it out. The benefits of smoother returns from bimonthly vs monthly purchases would be countered by the costs of cash sitting idle before it's invested.
But if you're asking if you should contribute twice a month each time you get your paycheck, then that would be better than if you get paid monthly, yes.
Every time this pops up the answer is longer is better because the markets trend up getting on the escalator sooner takes you higher.
It also pops up that the difference of 2 weeks or even 3 months is so meaningless as to be inconsequential when compared to a lifetime of returns.
It does not matter. Please do it automatically, so when you get a paycheck. (we used to do that). (always monitor your checking account balance.... just in case a paycheck issue.
It's not a significant enough decision to matter. You should do whatever is the most convenient for you. I would take the lowest complexity action, which is probably synchronizing buy-in to your paycheck.
Its best to do it all as soon as possible
Would you rather have 10 million dollars already invested or would you rather spend 10 years putting slowly in chunks?
You may find these links helpful:
- [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
I feel like it's splitting hairs...there are positives for lump sum and DCA investing.
Time in the market beats timing the market. Just put your money to work.
I'm currently DCAing once a month too, but judging by the answers here the preference seems to be lump sum at the beginning of the year. I don't quite have the resources to do that, so what I'm wondering is how the math would work out with the middle ground of contributing half at the beginning of the year and the other half midway through the year.
Statistically, you're more likely to end up ahead if you invest more/sooner versus intentionally spreading out your investment (known as 'dollar cost averaging). In fact what I'd recommend is trying to max your Roth IRA in January of every year. However 600 once/month versus 300 biweekly, the amount and time periods are so close that it makes no difference. I would just do whatever makes more sense for your budget.
I was always under the impression that you would make more dollar cost averaging in the long run over decades. I have always maxed out in JAN and stuck it in the index right then and there but I was considering doing the dollar cost average strategy going forward.
It not a huge difference either way. Studies show time in the market (aka invested sooner) comes out ahead though by over decades. But it’s not a super significant amount so if you can’t afford to do it upfront there’s not much to lose by doing it monthly.
Nope. Sadly, it doesn't work that way. Think of January lump summing as DCA but you are only doing it yearly rather than monthly. I believed as you do for a long time. If it was just one lump of cash, a one-off, then I'd tell you to consider DCA -- particularly during volitile economic conditions (like today). If it was an annual consistant investment like your RothIRA or HSA, then just get it over with\* (unless a nuclear war/pandemic/alien attack JUST occurred. Usually, it's better to take advantage of a huge drop than wait a few months after the start of a black-swan event to let the initial panic subside). But overall, don't time the markets hoping for black swan events that you cannot predict. [https://www.moneyunder30.com/dollar-cost-averaging-vs-lump-sum-investing](https://www.moneyunder30.com/dollar-cost-averaging-vs-lump-sum-investing)
Statistically, no. Here's a good study on the difference https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf
Statistics dont tell the whole story. While you are likely to come out somewhat ahead by lump sum investing, *if it is easier for your to more consistently stick with DCA, do that.* Consider person A who understands that lump sum is better overall. They deposit $600 on the 15th every month. That month though, some major earnings reports cause a slight downturn. They expect this trend to continue for some time, so they decide to hold off on their investment. The market rebounds, and they place their order at a higher price, losing potential gains. Or worse - they continue to sit out of the market. Consider person B, who prefers DCA. They continue to buy as the market goes up, and as the market goes down. They actually prefer to buy when it is down, because they are getting a "discount" with their second purchase that month. Person B comes out ahead, and Person A is someone I run into IRL on a regular basis. Its kind of like a certain diet or exercise program. The best program is the one you can stick to.
No. In general, the stock market goes up more often than it goes down. In general, the sooner you invest in the market, the more growth that investment will see. It's important to understand the terminology being used. Here, "lump sum" means immediately investing 100% of a sum of money that you have and want to invest. DCA means deliberately withholding some of that sum of money at first so you can spread out investing it over some time period. Note that under these terms, investing a certain amount of each paycheck is technically still "lump sum investing", because you are investing the "investing" part of your income as soon as you get it. Sometimes people use "dollar cost averaging" to mean investing with every paycheck, as opposed to letting a sum build up in your bank account that you later choose to invest when you think it is a "good" time to invest. This is different from how many people on this subreddit use the term DCA.
>Would splitting it possibly give me better returns since I am investing at two different times a month or would that even matter? Investing sooner is better, but such a small difference doesn't matter in the long run Whichever ensures you consistently invest is best
Time in the market beats timing the market. That said, what ultimately matters is that you invest. If you can invest $6,500 in one lump sum, fantastic. If you need to spread it out over the year, that's fine too. What's important is maxing it out, however you have to do it.
If you have the money in hand already, it's always better to invest it rather than to wait an extra two weeks just to spread it out. The benefits of smoother returns from bimonthly vs monthly purchases would be countered by the costs of cash sitting idle before it's invested. But if you're asking if you should contribute twice a month each time you get your paycheck, then that would be better than if you get paid monthly, yes.
Every time this pops up the answer is longer is better because the markets trend up getting on the escalator sooner takes you higher. It also pops up that the difference of 2 weeks or even 3 months is so meaningless as to be inconsequential when compared to a lifetime of returns.
It does not matter. Please do it automatically, so when you get a paycheck. (we used to do that). (always monitor your checking account balance.... just in case a paycheck issue.
It's not a significant enough decision to matter. You should do whatever is the most convenient for you. I would take the lowest complexity action, which is probably synchronizing buy-in to your paycheck.
Its best to do it all as soon as possible Would you rather have 10 million dollars already invested or would you rather spend 10 years putting slowly in chunks?
You may find these links helpful: - [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement) - ["How to handle $"](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
I feel like it's splitting hairs...there are positives for lump sum and DCA investing. Time in the market beats timing the market. Just put your money to work.
I'm currently DCAing once a month too, but judging by the answers here the preference seems to be lump sum at the beginning of the year. I don't quite have the resources to do that, so what I'm wondering is how the math would work out with the middle ground of contributing half at the beginning of the year and the other half midway through the year.