"Time in the market beats timing the market"

[_MEOW_]

I've heard this phrase thrown around lots of places and makes complete sense. You cannot time the market, but that said, is it best to periodically contribute to your portfolio throughout the year? or all at once?

Lets say you plan to contribute 12k each year. Is it best to contribute $1000 per month throughout the year (maybe even $500 per paycheck to spread the contributions even further). Or would it be best to throw all 12k in the beginning of January and forget about it!. I'm learning towards 12k all at once and then contributing any extra cash I might come into throughout the year. Maybe tax-refund, bonuses, gifts, ect... so 12k then whatever extra money I have periodically buy a few shares here and there.

 

[F.I.R.E User]

I prefer to put as much as possible as soon as I have the funds. That way, it grows faster and if it goes up then eventually it will come up.

 

[Dean56]

It's really a personal preference. Some people like to stretch out their contributions over the 12 month period. Nothing wrong with either way.

 

[DrRoy]

On average earlier is better.

 

[target2019]

Periodic investing goes down smoother IMO. This helped when building 401(k), SEP-IRA and Roth accounts over many years.

If you put 12K into the market in Jan then you might think of constantly comparing that decision to periodic investing in the same year. I suppose you could lump sum 6K into an account early Jan, and then do periodic investing each month by having automatic withdrawals to the investing account for comparison.

We set spouse Roth to receive $500 each month from checking. This has less impact on cash flow. But it is just a personal preference. What works for most may not work for you.

 

[Bigdawg]

If you put 12K into the market in Jan then you might think of constantly comparing that decision to periodic investing in the same year. I suppose you could lump sum 6K into an account early Jan, and then do periodic investing each month by having automatic withdrawals to the investing account for comparison.

Conversely if you dollar cost avg and put in $1000/mo you might constantly compare that decision to see if putting all $12k in at once would have been the better option. Second guessing works both ways.

 

[CardsFan]

If you have $12,000 available in January, why didn't you invest it last year?

 

[racy]

On average earlier is better.

+1
For the past 30 years I've tracked our monthly net worth. In 267 months, or 72% of the time, it increased. And, in 103 months, 28% of the time, net worth declined.
I'd take the odds and put it all in at once, too, but it's a personal decision!

 

[target2019]

Conversely if you dollar cost avg and put in $1000/mo you might constantly compare that decision to see if putting all $12k in at once would have been the better option. Second guessing works both ways.

YMMV. I'm sure there are those who track these things in either direction. Nyself, I would track the 12K early-Jan bet but not pay attention to the (12) 1-K wagers evenly spread throughout the year. As I mentioned, it's personal preference, what works for you, and so on.

 

[VanWinkle]

It's a personal decision based on a person's viewpoint of market gains or losses. Track record is to lump sum for better results. If you would capitulate on a lump sum if it showed an immediate loss, then dollar cost average is better for you.

VW

 

[corn18]

Invest money when you have it. Withdraw money when you need it. Not much more complicated than that.

 

[ckelly78z]

If you are holding cash until you can make one large, annual, lump sum deposit, you are missing out on gains throughout the year that you would have had with smaller monthly/bi-monthly deposits.

 

[walkinwood]

If you have $12,000 available in January, why didn't you invest it last year?

+1
Unless this $12k is an annual bonus, you should be investing as the money accumulates. I had automatic monthly investments in my mutual funds & I think it helped me immensely by taking that monthly decision out of my hands.

 

[Out-to-Lunch]

IIRC, the statistics are something like 2/3 of the time, a lump sum in Jan. beats a 12-month DCA. But you have to know yourself to know whether the other 1/3 of the time would bother you or not.

 

[mrfeh]

Lump sum.

 

[OldShooter]

Every buy or sell decision is "market timing" to some degree. I think DCA has a psychological attraction in that there is no one big decision to trumpet or regret. A DCA-er may miss a profit opportunity but we humans are much more sensitive to losses than we are to gains. So DCA is a very human solution to the timing problem.

 

[RunningBum]

My rationale to invest immediately is that I have an AA to manage volatility. I don't worry about volatility risk in a specific segment of my money, even if it is new. Think big picture.

Put another way, suppose you DON'T have $12K to invest at the start of the year. Would you take $12K out of your investments and then trickle it back in? Probably not, right? There's really no difference between new money and money that you already have invested, except for the human emotion of fear of that one big decision not working out. I try to invest logically, not emotionally.

But if DCA helps you sleep better, do it. Your money is your own business.

 

[Koolau]

I probably wouldn't be the one to make the case, but "one" could make a case that in times like right now, when the market is volatile, it might make sense to go all in on a big dip. Other than that, I would invest when I have the money - within the confines of my AA. More than ever, YMMV.

 

[ILikeStarTrek]

IIRC, the statistics are something like 2/3 of the time, a lump sum in Jan. beats a 12-month DCA. But you have to know yourself to know whether the other 1/3 of the time would bother you or not.

Yes, you recall correctly. The difference depends on the time frame considered, but generally speaking, investing earlier is better most of the time. I just posted this to another thread asking a variation of the same question.

https://ofdollarsanddata.com/lump-sum-investing/

 

[Animorph]

I like to invest as soon as possible. 12k invested in January is in the market longer than 1k/month throughout the next year. On average that should be better.

My one concession to timing is to buy more equities during a bear market. I'll shift my AA a little bit to equities and leave it until the market recovers. That's the one time I'm pretty sure what the market will do, eventually. No big moves, maybe 5% of the portfolio at a time. That leaves bonds/cash to buy more if the market continues down, or to finance expenses if the bear drags on for a long time. Hopefully that makes up for my 25% bond allocation because I'd rather be all equities.