IRA Contributions - DCA or Lump Sum for 2010?

[aaronc879]

I'm curious, how do people arrange their finances so they have several thousand dollars to add to a Roth or TIRA at the beginning of the year?

I make less money than ~95% of the active members on this forum and I still have $5000 to put in a ROTH all at once at the beginning of the year. I take it from a MM account that includes my emergency savings and short term savings. As of thursday I had $15000 or a year worth of expenses so now after putting $5000 into the ROTH, I have $10,000 or about 8 months expenses. If at any time this account gets too low I just give myself a raise by temperarily lowering my 401k contribution which is currently at 33%.

 

[Alan]

I usually fund our IRA's with lump sums in May & June, after the 401(k) has maxed out.

This year is my last year of earnings so I will open Roth IRA's for DW and I then lump sum into them, probably in March / April.

 

[GoodSense]

I lump summed into a Money Market account in my Roth yesterday, and will DCA through VG's automatic exchange into the various index accounts under the Roth throughout the year. So I voted DCA. Even though my crystal ball tells me that stocks will probably be higher at the end of the year than now, I don't quite trust it.

 

[DblDoc]

The costly myth of dollar-cost averaging - MSN Money

I sort of wonder if DCA is even a good idea at all?

First we must distinguish between DCA and PI (periodic investing). The former is something you do if you have a lump sum to invest, the latter is what you do monthly/bimonthly/weekly with your new earnings.

As the long-term trend of the market is to go up DCA will result in slightly lower returns - on average. It is an emotional risk management tool as we are wired to suffer losses worse than we appreciate gains. If you feel you would regret (to the point of making poor future investment decisions) if you were to suffer a short term loss by investing your entire lump sum then DCA it instead.

As for PI you can choose to save the money until you "lump sum" it when you think the timing is right or ignore the market "guru's" and your "gut" and just invest it as you earn it. Again as the long term trend is upwards you will be ahead on average vs trying to time your purchases.

DD

 

[cons]

lump sum into TIRA in Jan and then converting to Roth.

We've DCA in the past, however, this is the first year we'll be contributing via lump sum for the very same reason as Rocky. We did not contribute towards our IRAs last year, thus we plan on investing both the 2009 and 2010 contributions this Jan. We will also be converting our 2008 TIRA contributions into Roth's this Jan. as well. Hopefully, this loophole will be around for a while

It's a great idea if you don't have that much money all at once! I'm curious, how do people arrange their finances so they have several thousand dollars to add to a Roth or TIRA at the beginning of the year?

We added extra towards our cash reserves last year in anticipation of the big contributions this month. We're doing the same this year in the hopes of making the 2011 contributions/conversions early next year as well.