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Best time to buy into a fund
Old 12-09-2005, 06:49 AM   #1
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Best time to buy into a fund

Hey all, I pretty new on this board and new to investing too. But Iím learning quite a lot since I stumbled across this site, thank you to all that have responded to my other questions.
Now, Is there a good time to buy into a fund, I once heard that some funds dump stock at the end of the year and buy back in the beginning of the new year, if this is true, will it cause the value to drop ?
I also hear that itís better to buy in to a fund in small amounts at a time over a long period.
I have a fair amount of capital to invest and itís sitting in my bank making about 3% after tax, I would like to get it into a better investment.
For any one wondering what the after tax account is: My bank buys Triple A Tax free bonds at auction, the money turns over very quickly and is very ďliquidĒ (new word for me when it comes to talking money). The money is safe and I seem to be getting better than most short term Cds, however Iím sure you guys could give me a better choice.
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Re: Best time to buy into a fund
Old 12-09-2005, 08:23 AM   #2
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Re: Best time to buy into a fund

If you are buying for a taxable account this month, be very careful.* Most funds kick out their distributions in Dec (required by law) and if you buy right before they pay you get shares at a lower price and a tax bill you don't deserve.* Most fund websites will show distribution dates and amounts.* As far as using "dollar cost averaging" ( a little every month), generally a good strategy unless you are buying ETF's which involve a commission for each purchase. Some use a modified DCA* program which increases the allocation during low prices and decreases when prices are high. I personally like that method better.
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Re: Best time to buy into a fund
Old 12-09-2005, 10:35 AM   #3
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Re: Best time to buy into a fund

Quote:
Originally Posted by PJ03
Now, Is there a good time to buy into a fund, I once heard that some funds dump stock at the end of the year and buy back in the beginning of the new year, if this is true, will it cause the value to drop ?
It's tough to pick a good time to buy into a fund. To paraphrase Will Rogers, you should buy before it goes up. If it doesn't go up, then don't buy it.

Some bad times to buy into some funds are at the end of the year and the end of the quarter. The theory is that a fund will take your money, give some of it back to you when the fund makes its year-end distribution, and then you pay more taxes on it instead of having it working for you in the fund.

The quarterly theory is that fund managers are shuffling their portfolios around to look good for their investor reports. They sell the stocks that "didn't work out" and buy something that looks good. Then after the reports are written up, they sell the good-looking stock and start looking for love in all the wrong places again.

The issue with all three of the preceeding paragraphs is that you wouldn't want to buy funds like that anyway, so timing the purchases is irrelevant. If you're looking for low-expense, tax-efficient, low-turnover funds then timing is not an issue.

Quote:
Originally Posted by PJ03
I also hear that itís better to buy in to a fund in small amounts at a time over a long period.
Over the long term (a decade or longer) it's more effective to make periodic purchases than it is to fret the timing. The discipline of setting aside a portion of your income is what really fuels the compounding, not the timing of making purchases. Of course you could tinker with this by only dollar-cost-averaging from Jan-Aug or by making three purchases in Jan, Apr, & July or by "value averaging" into the funds that did the worst that period. But for most blissfully ignorant investors, the simple method of sending a % savings every month to their fund is the most effective method.

Quote:
Originally Posted by PJ03
I have a fair amount of capital to invest and itís sitting in my bank making about 3% after tax, I would like to get it into a better investment.
Well, a "better investment" is related to your asset allocation. Depending on what your other capital is invested in, your 3% may be doing just fine where it is. (I'm pretty sure that's what the bank would tell you!) Before you start your quest for the perfect fund(s), it's better to: (1) figure out your retirement expenses, (2) decide on how much of a retirement portfolio you'll need to fund those expenses, then (3) choose your asset allocation. Once you have those three nailed down then you're ready to start reading fund pornography prospectuses (prospectii?).
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Re: Best time to buy into a fund
Old 12-09-2005, 01:32 PM   #4
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Re: Best time to buy into a fund

Quote:
Originally Posted by Nords
It's tough to pick a good time to buy into a fund.* To paraphrase Will Rogers, you should buy before it goes up.* If it doesn't go up, then don't buy it.

Some bad times to buy into some funds are at the end of the year and the end of the quarter.* The theory is that a fund will take your money, give some of it back to you when the fund makes its year-end distribution, and then you pay more taxes on it instead of having it working for you in the fund.*

The quarterly theory is that fund managers are shuffling their portfolios around to look good for their investor reports.* They sell the stocks that "didn't work out" and buy something that looks good.* Then after the reports are written up, they sell the good-looking stock and start looking for love in all the wrong places again.


The issue with all three of the preceeding paragraphs is that you wouldn't want to buy funds like that anyway, so timing the purchases is irrelevant.* If you're looking for low-expense, tax-efficient, low-turnover funds then timing is not an issue.*
Over the long term (a decade or longer) it's more effective to make periodic purchases than it is to fret the timing.* The discipline of setting aside a portion of your income is what really fuels the compounding, not the timing of making purchases.* Of course you could tinker with this by only dollar-cost-averaging from Jan-Aug or by making three purchases in Jan, Apr, & July or by "value averaging" into the funds that did the worst that period.* But for most blissfully ignorant investors, the simple method of sending a % savings every month to their fund is the most effective method.
Well, a "better investment" is related to your asset allocation.* Depending on what your other capital is invested in, your 3% may be doing just fine where it is.* (I'm pretty sure that's what the bank would tell you!)* Before you start your quest for the perfect fund(s), it's better to: (1) figure out your retirement expenses, (2) decide on how much of a retirement portfolio you'll need to fund those expenses, then (3) choose your asset allocation.* Once you have those three nailed down then you're ready to start reading fund pornography prospectuses (prospectii?).
Nords. Again, thank you for your input, my other capital in heavy in real estate, i will hope to change that early in springtime (best time to sell) I guess I will sit tight for now and work on my homework, I've got quite a bit from both you and SG
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Re: Best time to buy into a fund
Old 12-09-2005, 06:04 PM   #5
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Re: Best time to buy into a fund

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I've got quite a bit from both you and SG
Yeah, me too.

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Re: Best time to buy into a fund
Old 12-09-2005, 08:07 PM   #6
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Re: Best time to buy into a fund

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Yeah, me too.* JG
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Re: Best time to buy into a fund
Old 12-09-2005, 08:55 PM   #7
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Re: Best time to buy into a fund

Hi PJ,

The dollar cost average question is an interesting one. It turns out that since the market goes up more than it goes down and goes up more often than it goes down, the move that has potential to provide highest return is NOT to dollar cost average (ie. move all the money at once). Of course this also carries the most risk. If you happen to move all the money into an investment the day before a major fall, you will lose more than if you dollar cost averaged it over several months. So, the decision is really a risk decision. If you aren't really too sure about the investment you're moving into, you may want to dollar cost average.

The real value of dollar cost averaging is the discipline it brings to investors who are still earning a regular pay check. Make the investment every pay period and avoid analysis paralysis.
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Re: Best time to buy into a fund
Old 12-12-2005, 09:30 AM   #8
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Re: Best time to buy into a fund

Well if your investing in ETFS why not simply sell puts on the amount you wanted to invest untill they get exercised... If the funds drop you would have bought in anyway and if they dont you stand to make some nice returns on your money!!
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