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Learning, Sharing, and Teaching => Investor Alley => Topic started by: teacherman on March 11, 2013, 03:13:26 PM

Title: I've got $7000 coming; when should I invest it?
Post by: teacherman on March 11, 2013, 03:13:26 PM
Hi all, as the subject says, I've got an extra $7000 coming on April 1st (no it's not an April Fool's joke; at least I hope not!) and I want to use it to jump start my investment in stocks. I've already got 10k in a conservative mutual fund through Vanguard plus about 8k in my Roth IRA through work. My 'stache isn't very big yet but I'm working on it...

I'm pretty sure I want to put it in the Vanguard 500 Index; my question is, should I dump it all in at the beginning of April, or should I do a bit at a time?

I don't want to waste anyone's time so if this has already been discussed somewhere please feel free to point me in the right direction. Thanks!
Title: Re: I've got $7000 coming; when should I invest it?
Post by: brewer12345 on March 11, 2013, 03:19:04 PM
If it makes you feel better, put in a thousand at the start of every month.  But statistically speaking, if you have an investment horizon of 10 or more years it probably does not matter whether you feed it in slowly or dump it all in at once.
Title: Re: I've got $7000 coming; when should I invest it?
Post by: arebelspy on March 11, 2013, 03:21:37 PM
I'm pretty sure I want to put it in the Vanguard 500 Index; my question is, should I dump it all in at the beginning of April, or should I do a bit at a time?

Since you know where you want to put it, it seems like this is the relevant question left.

Research both "dollar cost averaging" and "value averaging" versus "lump sum."

If you just want opinions, we can shout them out (and I'm guessing, based on what I've seen so far on these forums, value averaging will have the slight edge in votes, though it may not be my preference), but I'd recommend researching and deciding for yourself which you prefer.
Title: Re: I've got $7000 coming; when should I invest it?
Post by: the fixer on March 11, 2013, 03:36:11 PM
While it may seem like a lot when your portfolio is small, $7000 is actually not a huge amount of money so just dumping it all in the market at once is not going to make a big difference. Also, dollar cost averaging, on average, reduces risk when buying, but it also reduces returns. See http://www.obliviousinvestor.com/what-to-do-with-a-lump-sum/

Suppose the market drops 2% right after you invest the total sum; that's $140 gone. But over 10 years this money should grow to be worth about $13k inflation-adjusted, so that early $140 loss is hardly going to register a dent. And it's slightly more likely that the market will go up the day after you buy than drop anyway.

Have you considered investing in the Vanguard Total Stock Market index (VTSMX)? More diversified, and historically higher returns due to that diversification. See http://www.cbsnews.com/8301-505123_162-57568561/formula-x-trounces-s-p-500/
Title: Re: I've got $7000 coming; when should I invest it?
Post by: shaunr on March 11, 2013, 03:43:27 PM
Mathematically, lump sum is better.

Psychologically, spreading it out may be better. For example if the market is trending down, you will have bought more shares, cheaper (win).  If it trends upwards, you will still make money - just a bit less of it (which may still feel like a win).

Personally, I would stick to the math and do lump sum in your situation.  It's statistically better.  If you make many such small-advantage financial decisions many times, these small advantages snowball into a big advantage.
Title: Re: I've got $7000 coming; when should I invest it?
Post by: grantmeaname on March 31, 2013, 08:04:53 AM
Happy $7,000 day! What did you decide to do with your phat stacks of cash?
Title: Re: I've got $7000 coming; when should I invest it?
Post by: frugal_engineer on March 31, 2013, 10:03:06 AM
Mathematically, lump sum is better.

Keep in mind that the statistics don't take into account that the S&P500 just recorded an all time high.  The last 2 times that happened, it dropped 50% in a year.  Might be a good time to do some dollar cost averaging based on these special circumstances.
Title: Re: I've got $7000 coming; when should I invest it?
Post by: GreenGuava on March 31, 2013, 10:05:59 AM
Mathematically, lump sum is better.

Keep in mind that the statistics don't take into account that the S&P500 just recorded an all time high.  The last 2 times that happened, it dropped 50% in a year.  Might be a good time to do some dollar cost averaging based on these special circumstances.

The claim that it's at an all-time high right now doesn't account for inflation.