Author Topic: max out tIRA contributions with single purchase?  (Read 2163 times)

doneby35

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max out tIRA contributions with single purchase?
« on: January 06, 2017, 10:40:50 AM »
I wasn't sure if this was a question that has been asked and did not know how to search for it, but I was wondering how everyone on here maxes out their tIRA contributions. Do you max it out with a single purchase, or do you buy in multiple phases until you max it out?
I was thinking that if you max it out with a single purchase and then the market crashes, you would not have the capability to take advantage of bargain prices during the same year, therefore it wouldn't be the best method, correct?

dandarc

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Re: max out tIRA contributions with single purchase?
« Reply #1 on: January 06, 2017, 10:43:46 AM »
Except that the market is more likely to go up than down in any given day / week / month / year.

Just put it in as soon as you have the money and move on - soon you'll have so much money in there one year's contribution price will be pretty much inconsequential anyway.

I'm a red panda

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Re: max out tIRA contributions with single purchase?
« Reply #2 on: January 06, 2017, 10:49:28 AM »
We DCA throughout the year with regular purchases.

WildJager

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Re: max out tIRA contributions with single purchase?
« Reply #3 on: January 06, 2017, 10:54:12 AM »
What you're asking is basically a mix of market timing and dollar-cost-averaging.  Market timing is notoriously attempted (just buy when the market is low, and sell when high.  Easy!) but usually ineffective because it's really, really hard to accurately predict the future of the market.

With dollar-cost-averaging (DCA) you're putting in a fixed amount periodically with the long term assumption that you will sometimes (by random change) buy while the market is down, therefore make a profit when the market recovers.  While seemingly the most logical approach, a study was done by one of the investment firms (Fidelity I think?) that, on average, just putting all of your money in up front in a bulk sum will be more profitable (2/3rds of the time if I remember right) than DCA.  The reason for this is, if you have the money available and aren't investing it you're losing out on potential gains during a bull market.  Since the market goes up more often than down, statistically DCA is less efficient than investing a lump sum up front.

When you invest every month from your paycheck, you are unwittingly engaging in DCA.  But, since you can't get paid up front for your year of work, there's nothing you can do to optimize that. 

Edit:  I invest lump sum at the begging of the year in our IRAs due to the aforementioned reason.
« Last Edit: January 06, 2017, 10:55:53 AM by WildJager »

Nothlit

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Re: max out tIRA contributions with single purchase?
« Reply #4 on: January 06, 2017, 10:57:42 AM »
As soon as I have money to invest, I invest it. Lump sum beats dollar cost averaging over the long run.

I'm a red panda

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Re: max out tIRA contributions with single purchase?
« Reply #5 on: January 06, 2017, 11:10:16 AM »
I guess I consider the dollar amount going into an IRA small, so I've never really cared to "lump sum".
When we put $80k into vanguard we put it all in at once, because the cost to spread it out would have been really high.

doneby35

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Re: max out tIRA contributions with single purchase?
« Reply #6 on: January 06, 2017, 11:48:08 AM »
I see, makes sense...all at once it is then. Thanks for the replies.

catccc

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Re: max out tIRA contributions with single purchase?
« Reply #7 on: January 06, 2017, 12:51:05 PM »
We max out at the start of the year for that current year's contributions using cash savings from the prior year.  Sometimes this makes me nervous, but as someone else pointed out $5,500 isn't a huge amount.  The most I ever threw into the market in one fell swoop was about $80K and I was just sorry I didn't do it sooner.  So go for it!

MoonLiteNite

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Re: max out tIRA contributions with single purchase?
« Reply #8 on: January 08, 2017, 02:07:52 AM »
dollar cost averaging vs all at once.

My first year (last) i did dollar cost averaging over 6 months.
This year, actually yesterday, i wired over all 5,500$.

You are more likely to be correct by buying NOW. Now if the market tanks dollar cost averaging would be better, but odds are "the sooner the better"
« Last Edit: January 08, 2017, 05:49:34 AM by MoonLiteNite »

chasesfish

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Re: max out tIRA contributions with single purchase?
« Reply #9 on: January 08, 2017, 05:45:47 AM »
I max mine out on the first week of January every year.  I was helping one of my coworkers just this week on the same debate.

Each year, the market has a roughly 65% chance of going up and 35% chance of going down.  If you max it out on the first day of each year, you win twice for each time you loose.  Remember, this isn't the only year you're going to invest.

doneby35

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Re: max out tIRA contributions with single purchase?
« Reply #10 on: January 08, 2017, 07:44:38 AM »
All valid points. Thanks everyone.