Funding Roth - All at once or a little each month?

[rigz]

So far for the past few years I have funded my Roth for the max once per year. Is there any advatange or disadvantage to this vs. dividing it by 12 and doing a monthly contribution? (something about dollar cost averaging which I don't quite understand). Should I start making monthly contributions or is it ok sticking with a one time 5k contribution?

[bjl584]

That depends on what you are investing in within your ROTH. What does your portfolio look like?

If you buy individual stocks within your ROTH, then a one time yearly contribution may be better since you will have a nice cash reserve to buy shares with. But, if you are investing in a mutual fund(s), then spreading out your contributions can be a better option since you will be spreading out your investment. It gives you more market exposure and allows you to buy the fund in the valleys as well as the peaks. It's just a way of spreading out your risk.

[disneysteve]

If you can fund your Roth in full early in the year with a lump sum, go for it. I did that at the beginning of January this year. The advantage to that is that you get the money growing tax-free as soon as possible.

Dollar cost averaging means investing a set amount on a set schedule over time. That could mean monthly, quarterly or annually. They all qualify as dollar cost averaging. A once a year deposit for 30 years is just fine.

[MonkeyMama]

In general, the advice is to get it in as soon as possible.

Meaning, if you can put in $5k into your ROTH on Jan. 1 - then do that.

If you are saving up the money and then putting it in, you would probably be better served to put it in monthly, until you can max out. At the rate which the funds are available.

Putting money in every single year is a form of dollar cost averaging. Statistically, investing money sooner, rather than later, is better.