Investment Timing

[Elementary]

So I know you're not supposed to time the market but...

I usually make a lump-sum contribution to my IRA about this time of year, but with the market at record highs I'm hesitating. I only have until the end of the year to contribute (technically part of next year too, but you get the point). Do I take the plunge and live with the consequences? Or is there wisdom in waiting a little longer?

Need some objective advice here. $5500 is a lot of money for me, and even though I won't be retiring for a long, long time it's still hard to pull the trigger.

Thanks!

[Jluke]

A lot of red flag buzz words in your post but I think you get it. I will just offer that you can contribute the money now to your IRA and should be able to leave it in "cash" until you are ready to invest it.

The market has been at record highs for quite a few years. Just when you think it can't go higher it does. Something to think about

[cooliemae]

Is there something preventing you from making engaging in dollar-cost averaging and invest money on a more regular basis?

[kork13]

Best advice I can give: Investing success is not reliant upon timing the market, but rather, time in the market.

You have the cash right now, and the intention of investing it. Just do it, get yourself invested, and move on with your life. If you try to wait, fret over the state of the markets for another 3 months until the contribution cutoff is nearly upon you, your money will have lost out on a quarter of its potential earning opportunity for the year. Nobody knows what the market will be like tomorrow, next week, or next year. Better to be invested in the market than to sit on the sidelines waiting for a hoped-for "perfect" opportunity.

Though I will say, I personally choose to DCA semi-monthly to prevent this kind of concern. That way, I know that even if my buy goes in high one week, in a month it could be low again, and I'll get the discount. Rather, by doing a single annual DCA, you're sorta putting all your eggs in one basket.

So my advice going forward would be to DCA in more often, like monthly, or at least quarterly. Make it automatic, and don't stress about the daily machinations of the market. However, I'll also say invest what you have, when you have it. If you DCA out of your monthly pay, do it my way. If you do it out of your annual bonus check, then a single lump sum makes sense... Bottom line: Don't let your money sit on the sidelines!

[disneysteve]

Or is there wisdom in waiting a little longer?

Just the opposite. The longer you wait, the less benefit you are getting from the tax shelter. You should fund your IRA as early in the year as you are able. I have fully funded ours as early as the first week of January.

That does not mean that you can't still do dollar cost averaging if you wish. You can put the money into a cash account within the IRA and then do monthly transfers to the equity funds.

[feh]

Do I take the plunge and live with the consequences?

Yes. The best time to invest is today.

[StormRichards]

We start the year off with a DCA plan, but typically max out our Roths early. What the market is doing isn't a factor. Our paychecks hit our checking account, I pay bills and then decide whether to contribute the planned amount, less if necessary or more if expenses were light that month. I consult DH before contributing a significant amount (several hundred) above what we have budgeted. If it is an extra $50 per account, I don't bother him.

So if I were you, I would max it out right now and next year try to DCA

[greenskeeper]

So I know you're not supposed to time the market but...

I usually make a lump-sum contribution to my IRA about this time of year, but with the market at record highs I'm hesitating. I only have until the end of the year to contribute (technically part of next year too, but you get the point). Do I take the plunge and live with the consequences? Or is there wisdom in waiting a little longer?

Need some objective advice here. $5500 is a lot of money for me, and even though I won't be retiring for a long, long time it's still hard to pull the trigger.

Thanks!

If you are uncomfortable with the height of the market, and it is completely reasonable, you could throw the money at your mortgage and take the instant return of the finance rate.

[TexasHusker]

Who says you have to buy stocks with that money? Why not a REIT fund that pays a good dividend or precious metals ETFs? You can buy all sorts of stuff inside an IRA besides stocks.

Silver is dirt cheap right now. As low as it's been in many months. You could back up the truck with that tomorrow and be quite happy in 5 years.

I'm going to buy about $5K worth of bullion tomorrow. In an IRA, you just buy the ETF, and SLV is the ticker.

[sv2007]

So I know you're not supposed to time the market but...

I usually make a lump-sum contribution to my IRA about this time of year, but with the market at record highs I'm hesitating. I only have until the end of the year to contribute (technically part of next year too, but you get the point). Do I take the plunge and live with the consequences? Or is there wisdom in waiting a little longer?

Need some objective advice here. $5500 is a lot of money for me, and even though I won't be retiring for a long, long time it's still hard to pull the trigger.

Thanks!

You have to first figure out what type of investor you are; then everything becomes easy. But... figuring out is very hard through.

If you are a total believer in never timing the market, then you want your money invested ASAP. Why? Simple math. These folks assumes a market return of x%/yr, and the longer you have your $ outside, the less of that x% you'll get.

if you are a total believer in market timing, then want to input the current situation into your model and see what it tells you to do. The key here is that there is always somewhere and something to invest, i.e. your indicators says stock x is too expensive (you are saying market is high in your OP) and you should take a short view on it, etc.

Then there's an infinite degree of shade between these 2 extremes. Once you figure it out, then investing becomes easy.

[Singuy]

What is the most efficient use of dollar cost averaging? Twice monthly? 4 times a month? Daily? Once monthly?

I am wondering if it makes any difference.

[Singuy]

You have to first figure out what type of investor you are; then everything becomes easy. But... figuring out is very hard through.

If you are a total believer in never timing the market, then you want your money invested ASAP. Why? Simple math. These folks assumes a market return of x%/yr, and the longer you have your $ outside, the less of that x% you'll get.

I have trouble with the math simply because the market is not a guaranteed return unlike a CD. You can literally put in all your money in the beginning of the year and make a -1.5% return for the year if you put your money in there when the dow is at 18000 and closed at 17500 for the year.

This is why I have trouble assigning the concept of compounding interest into an index fund. There are too many variables to calculate what your future returns may be. If I invest 5k today and the market for the year went up by 25%...and next year I invest 5k again and the market only went up by 2%...you are WAY better off if you invested 10k year 1 and 0 dollar year 2.

[kork13]

What is the most efficient use of dollar cost averaging? Twice monthly? 4 times a month? Daily? Once monthly?

I am wondering if it makes any difference.

IMO, you do it when you have the money to invest. I get paid twice a month, so it's twice a month that I invest. My thought is just to get the money invested whenever possible. In the end, it doesn't really matter exactly how you do it, though more frequently gives you more safety from market swings, preventing your DCA from buying at "the wrong time" (for example, at close of business the final day of a 2 week upward streak). But even then, as long as you do it with some sort of regularity, the difference between highs and lows won't matter in the long run. So with that in mind, I always recommend at least quarterly, preferably at least monthly.

[scfr]

One reason to consider waiting is if there is a chance you may go over the deduction limit. Otherwise, I'd suggest making regular contributions throughout the year based on the calendar and not the market(s).

[feh]

I have trouble with the math simply because the market is not a guaranteed return unlike a CD. You can literally put in all your money in the beginning of the year and make a -1.5% return for the year if you put your money in there when the dow is at 18000 and closed at 17500 for the year.

This is why I have trouble assigning the concept of compounding interest into an index fund. There are too many variables to calculate what your future returns may be. If I invest 5k today and the market for the year went up by 25%...and next year I invest 5k again and the market only went up by 2%...you are WAY better off if you invested 10k year 1 and 0 dollar year 2.

It's pretty simple, really - if you believe the general trend of the equities market is up, then there is no better time to invest than today. The longer your time horizon, the more applicable this approach is. If you don't need the money for years/decades, why do you care what the value of the investment is in 12 months?

https://www.bogleheads.org/wiki/Bogl...ime_the_market