Author Topic: Roth IRA - Better to contribute weekly or monthly?  (Read 6690 times)

xclonexclonex

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Roth IRA - Better to contribute weekly or monthly?
« on: February 20, 2016, 09:46:00 PM »
Hello folks,

I have a Roth IRA account with Vanguard. I realized they have an option to make an automatic weekly contribution. I currently have my contributions set to monthly. I was wondering if it would be a good idea to change my frequency to weekly because I would be able to take advantage of dollar cost averaging.

Is this a good idea? Any opinions would be appreciated.

Thanks.

Larabeth

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Re: Roth IRA - Better to contribute weekly or monthly?
« Reply #1 on: February 20, 2016, 09:48:37 PM »
Complete novice here but I would think investing up front instead of dragging it out through the month would be better?

However, if you would invest more by making weekly investments, go that route!

seattlecyclone

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Re: Roth IRA - Better to contribute weekly or monthly?
« Reply #2 on: February 20, 2016, 10:04:17 PM »
In general it's best to invest as soon as you have the cash available. If you get paid weekly and want to set aside a certain amount for IRA contributions, then do that. By the same token, if you have money available today that you would like to have invested eventually, you'll usually be better off investing it today than tomorrow or next week or next month.

xclonexclonex

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Re: Roth IRA - Better to contribute weekly or monthly?
« Reply #3 on: February 21, 2016, 01:32:08 PM »
The only reason i am asking this is because if I invest whenever i happen to have money, and if I keep buying shares when they are at their peak my returns won't be as good, as opposed to consistently investing.

I just wanted to get the community's take on the idea of investing regularly vs. investing whenever I have cash available.

Thanks.

seattlecyclone

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Re: Roth IRA - Better to contribute weekly or monthly?
« Reply #4 on: February 21, 2016, 01:42:07 PM »
The only reason i am asking this is because if I invest whenever i happen to have money, and if I keep buying shares when they are at their peak my returns won't be as good, as opposed to consistently investing.

Yes, your returns will be better when you buy shares at a lower price. However if you actually expect the price to go down by next week, why invest any money at all this week? The reason investing as soon as possible tends to be optimal is that stocks go up in price on an average day. Sometimes you will be better off waiting, but most of the time you'll be better off not waiting.

BrickByBrick

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Re: Roth IRA - Better to contribute weekly or monthly?
« Reply #5 on: February 21, 2016, 05:34:00 PM »
The only reason i am asking this is because if I invest whenever i happen to have money, and if I keep buying shares when they are at their peak my returns won't be as good, as opposed to consistently investing.

Rebuttal:
http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
http://jlcollinsnh.com/2012/04/25/stocks-part-iii-most-people-lose-money-in-the-market/

Of course, if doing that helps put your mind at ease and encourages you to continually invest then by all means DCA weekly. 

xclonexclonex

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Re: Roth IRA - Better to contribute weekly or monthly?
« Reply #6 on: February 22, 2016, 05:53:14 AM »
Thank you very much for those links. Its definitely very interesting to read the thought process behind not using DCA.

So I think the decision is fairly simple. I will go ahead and max out my Roth IRA right now :p

ooeei

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Re: Roth IRA - Better to contribute weekly or monthly?
« Reply #7 on: February 22, 2016, 06:38:11 AM »
Investing up front is mathematically the best way to invest.  That being said, sometimes it will not work out well, for example if you invest your yearly $5500 in your IRA then two days later the market crashes 40%.  If that's not something you can handle, DCA weekly or monthly is the way to go.  Over the long run there will be more times that it raises than it crashes, but the crashes will happen.

One thing to keep in mind is that most investments are DCA when you look at a long time frame.  Even if you invest $5500 on January 1st every year, you're still DCA over a 20 year time frame.  Some years your investment will go up during the year, some it will go down and you'll wish you'd waited.  Over the long run there'll probably be more where it goes up.  The same with yearly bonuses, tax return, etc etc.  The only things that aren't DCA in some way are one time life events, like inheritances or maybe a real estate sale.  Personally if I got a large inheritance or won the lottery, I'd probably DCA over a year or two as a bit of downside protection. 

As far as whether DCA weekly or monthly is better, I don't think it matters very much.  Just do whichever is more convenient for you.  Generally going along with your pay rate will be the most convenient.