Author Topic: Wait until market bounces back to fund IRA?  (Read 6244 times)

MVal

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Wait until market bounces back to fund IRA?
« on: July 29, 2015, 07:46:48 AM »
So I just opened my Roth IRA at Vanguard and transferred all of my old Roth assets from another bank into their Target Date 2045 fund. However, with the market down like it is, so far all I've done is lose $200. I have not yet made any 2015 contributions to my Roth, but I have the money. Should I go ahead and put it all in now, the whole $5500, or wait a little later in the year and see if the market comes back up? Or...does it matter?

Just thought I'd see what you more seasoned investors thought.

protostache

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Re: Wait until market bounces back to fund IRA?
« Reply #1 on: July 29, 2015, 07:55:39 AM »
The best time to invest in the market is yesterday. The second best time to invest is today.

Don't wait. Market timing isn't worth it. What if the market rallies tomorrow? Today could be a local bottom, and you might be waiting another month before the time is "right".

Gone Fishing

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Re: Wait until market bounces back to fund IRA?
« Reply #2 on: July 29, 2015, 07:57:28 AM »
Buy low, not high!

For most folks with ER plans, a traditional IRA makes more sense than a ROTH, but it depends on your tax situation.

Read the links in my signature below to see how it works and if it is right for you.

MDM

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Re: Wait until market bounces back to fund IRA?
« Reply #3 on: July 29, 2015, 08:04:37 AM »
Should I ... wait ... and see if the market comes back up?

Why would you want to wait until it costs you more to buy shares?

ingrownstudentloans

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Re: Wait until market bounces back to fund IRA?
« Reply #4 on: July 29, 2015, 08:06:28 AM »
So I just opened my Roth IRA at Vanguard and transferred all of my old Roth assets from another bank into their Target Date 2045 fund. However, with the market down like it is, so far all I've done is lose $200. I have not yet made any 2015 contributions to my Roth, but I have the money. Should I go ahead and put it all in now, the whole $5500, or wait a little later in the year and see if the market comes back up? Or...does it matter?

Just thought I'd see what you more seasoned investors thought.

I am confused by the question - why would anyone want the market to go up before buying in?  That would make your cost higher and the number of shares lower.  You want to buy now, when it is lower so that you purchases are worth more later when "the market comes back up."

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Rodgers12

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Re: Wait until market bounces back to fund IRA?
« Reply #6 on: July 29, 2015, 08:16:51 AM »
I am a fan of dollar cost averaging. Deposit the money into the account and set up monthly purchases say $200-$300 a month. Just my opinion.

nereo

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Re: Wait until market bounces back to fund IRA?
« Reply #7 on: July 29, 2015, 08:34:01 AM »
I am a fan of dollar cost averaging. Deposit the money into the account and set up monthly purchases say $200-$300 a month. Just my opinion.

you might want to read the study that Vanguard did on DCA vs lump-sum investing.  Short version:  lump-sum beat out DCA 67% of the time.  Link keeps opening a PDF but just google "Vanguard dollar-cost averaging means taking risks later"

Also, see JL Collin's thoughts on the matter, as well as Mike and Lauren's thoughts on the pyschological aspect of lump-sump investing

To the OP:  No, invest in your IRA now.  Be thankful there was a dip.  In the long run (decades), the difference will be small, and odds are you will be better off just investing it all now.

Rodgers12

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Re: Wait until market bounces back to fund IRA?
« Reply #8 on: July 29, 2015, 09:06:09 AM »
I am a fan of dollar cost averaging. Deposit the money into the account and set up monthly purchases say $200-$300 a month. Just my opinion.

you might want to read the study that Vanguard did on DCA vs lump-sum investing.  Short version:  lump-sum beat out DCA 67% of the time.  Link keeps opening a PDF but just google "Vanguard dollar-cost averaging means taking risks later"

Also, see JL Collin's thoughts on the matter, as well as Mike and Lauren's thoughts on the pyschological aspect of lump-sump investing

To the OP:  No, invest in your IRA now.  Be thankful there was a dip.  In the long run (decades), the difference will be small, and odds are you will be better off just investing it all now.

Thanks for the info! I will definitely check into it.

MVal

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Re: Wait until market bounces back to fund IRA?
« Reply #9 on: July 29, 2015, 09:10:51 AM »
Ohh, okay...see, this is why I ask you guys all the burning questions of life--you're always good for a facepunch. I think I was thinking about it all wrong, as though it were like a savings account that makes "interest" rather than the investment it is. Just like precious metals, you don't worry about how much your stash has depreciated so much as the opportunity to buy more at a cheaper price when it dips.

forummm

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Re: Wait until market bounces back to fund IRA?
« Reply #10 on: July 29, 2015, 09:29:52 AM »
Ohh, okay...see, this is why I ask you guys all the burning questions of life--you're always good for a facepunch. I think I was thinking about it all wrong, as though it were like a savings account that makes "interest" rather than the investment it is. Just like precious metals, you don't worry about how much your stash has depreciated so much as the opportunity to buy more at a cheaper price when it dips.

When you're in accumulating mode, price drops are your friend.

trailrated

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Re: Wait until market bounces back to fund IRA?
« Reply #11 on: July 29, 2015, 09:38:47 AM »
Should I ... wait ... and see if the market comes back up?

Why would you want to wait until it costs you more to buy shares?

+1

innerscorecard

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Re: Wait until market bounces back to fund IRA?
« Reply #12 on: July 29, 2015, 11:09:27 AM »
Ohh, okay...see, this is why I ask you guys all the burning questions of life--you're always good for a facepunch. I think I was thinking about it all wrong, as though it were like a savings account that makes "interest" rather than the investment it is. Just like precious metals, you don't worry about how much your stash has depreciated so much as the opportunity to buy more at a cheaper price when it dips.

It's not like precious metals at all though.

Kaspian

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Re: Wait until market bounces back to fund IRA?
« Reply #13 on: July 29, 2015, 11:31:36 AM »
The question really is:  "If you had $5500 invested right now, would you pull it out to cash?"  If no, why not?  It's the same question as having $5500 in cash and not putting in investments.  It's $5500 no matter where it is.

CorpRaider

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Re: Wait until market bounces back to fund IRA?
« Reply #14 on: July 29, 2015, 12:50:16 PM »
Ohh, okay...see, this is why I ask you guys all the burning questions of life--you're always good for a facepunch. I think I was thinking about it all wrong, as though it were like a savings account that makes "interest" rather than the investment it is. Just like precious metals, you don't worry about how much your stash has depreciated so much as the opportunity to buy more at a cheaper price when it dips.

It's not like precious metals at all though.

Like precious metals, except with actual intrinsic value.

PaulMaxime

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Re: Wait until market bounces back to fund IRA?
« Reply #15 on: July 29, 2015, 01:03:16 PM »
So I just opened my Roth IRA at Vanguard and transferred all of my old Roth assets from another bank into their Target Date 2045 fund. However, with the market down like it is, so far all I've done is lose $200. I have not yet made any 2015 contributions to my Roth, but I have the money. Should I go ahead and put it all in now, the whole $5500, or wait a little later in the year and see if the market comes back up? Or...does it matter?

Just thought I'd see what you more seasoned investors thought.

What's your time frame? Target Date 2045 sounds like 30 years to me. If you plan on having this investment for years, then you should be hoping for the market to drop as much as possible. You should be excited that 2008-2009 happens in the middle of your investing career. Every previous downturn looks like an opportunity in hindsight, and a cause for fear when it's happening.

The most money I've made on investing in my life was buy buying consistently while the financial world was collapsing around me back in 2008-2009.

With the market down you are getting your stocks on sale. The expected future return of an investment goes up inverse to the price you paid for it.

The key though is that nobody can predict when that big drop is going to happen so just keep on adding all the time.

nereo

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Re: Wait until market bounces back to fund IRA?
« Reply #16 on: July 29, 2015, 01:47:04 PM »
So I just opened my Roth IRA at Vanguard and transferred all of my old Roth assets from another bank into their Target Date 2045 fund. However, with the market down like it is, so far all I've done is lose $200. I have not yet made any 2015 contributions to my Roth, but I have the money. Should I go ahead and put it all in now, the whole $5500, or wait a little later in the year and see if the market comes back up? Or...does it matter?

Just thought I'd see what you more seasoned investors thought.

What's your time frame? Target Date 2045 sounds like 30 years to me. ...
Curious here... how could his/her time frame matter regarding whether he/she should contibute the funds-in-hand now or in a few months.  It's a use-it-or-loose-it contribution into an IRA. 

MVal

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Re: Wait until market bounces back to fund IRA?
« Reply #17 on: July 29, 2015, 02:05:49 PM »
Well now that you put it that way, about stocks being "on sale," perhaps I would do better to open a traditional IRA along side my Roth so that I could get more bang for my buck. I'm in the 15% tax bracket right now, but no idea where I'll be in the future.

rpr

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Re: Wait until market bounces back to fund IRA?
« Reply #18 on: July 29, 2015, 02:09:23 PM »
Well now that you put it that way, about stocks being "on sale," perhaps I would do better to open a traditional IRA along side my Roth so that I could get more bang for my buck. I'm in the 15% tax bracket right now, but no idea where I'll be in the future.
Just remember that if you have both Traditional and Roth IRA, the maximum is still $5500 between both accounts combined. You cannot contribute $5500 to a Traditional IRA and another $5500 to a Roth IRA. 

MVal

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Re: Wait until market bounces back to fund IRA?
« Reply #19 on: July 29, 2015, 02:46:34 PM »
Well now that you put it that way, about stocks being "on sale," perhaps I would do better to open a traditional IRA along side my Roth so that I could get more bang for my buck. I'm in the 15% tax bracket right now, but no idea where I'll be in the future.
Just remember that if you have both Traditional and Roth IRA, the maximum is still $5500 between both accounts combined. You cannot contribute $5500 to a Traditional IRA and another $5500 to a Roth IRA.

Yes, I know. That's why I'm trying to decide which account to put my money in this year. I suppose I could put $2750 in each, even.

MDM

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Re: Wait until market bounces back to fund IRA?
« Reply #20 on: July 29, 2015, 03:01:39 PM »
Yes, I know. That's why I'm trying to decide which account to put my money in this year. I suppose I could put $2750 in each, even.

One could do some very detailed calculations/guesses to answer that question, or follow the rule of thumb: use traditional if your current marginal federal tax bracket is 25% or above, and use Roth if it is 15% or below.  The true best approach depends on your marginal tax at contribution time vs. your marginal tax when you choose to withdraw those contributions and their returns.

PaulMaxime

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Re: Wait until market bounces back to fund IRA?
« Reply #21 on: July 29, 2015, 03:34:55 PM »

Curious here... how could his/her time frame matter regarding whether he/she should contibute the funds-in-hand now or in a few months.  It's a use-it-or-loose-it contribution into an IRA.

In 30 years I doubt that he'll remember when he invested this small amount of money. But it sets a dangerous precedent. Why would you wait until after the market recovered - you want to be investing when the market is down, not up.

nereo

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Re: Wait until market bounces back to fund IRA?
« Reply #22 on: July 29, 2015, 03:41:51 PM »

Curious here... how could his/her time frame matter regarding whether he/she should contibute the funds-in-hand now or in a few months.  It's a use-it-or-loose-it contribution into an IRA.

In 30 years I doubt that he'll remember when he invested this small amount of money. But it sets a dangerous precedent. Why would you wait until after the market recovered - you want to be investing when the market is down, not up.
what I meant was - you asked what the OP's investment time frame is.  I'm saying that in this case the investment time frame is irrelevant.  The OP has ~9 months to make the contribution.  If he/she is going to make a contribution, he/she should just do it.  It doesn't matter whether the investment time frame is 1 year or 51 years in this case.

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Re: Wait until market bounces back to fund IRA?
« Reply #23 on: July 29, 2015, 04:54:58 PM »
I actually get happy when the market goes down.  I'm buying for the long term so short term sales are awesome. 

Lets say the SP500 is at 2100 today.  The world would freak out... but I wouldn't mind buying in when it is only 1000.  Eventually it will hit 3000, and then 4000.... 5000 and beyond.  I would much rather see my money grow by 400% rather than only 138%. 

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Re: Wait until market bounces back to fund IRA?
« Reply #24 on: July 29, 2015, 05:06:17 PM »
I worried about this myself. But after some input from the good folks here and my deferred comp advisor, im buying no matter what the market looks like.
I dont need this money for many years to come. Ill be paying more attention when I need to sell some off in the future

PaulMaxime

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Re: Wait until market bounces back to fund IRA?
« Reply #25 on: July 29, 2015, 06:27:11 PM »

what I meant was - you asked what the OP's investment time frame is.  I'm saying that in this case the investment time frame is irrelevant.  The OP has ~9 months to make the contribution.  If he/she is going to make a contribution, he/she should just do it.  It doesn't matter whether the investment time frame is 1 year or 51 years in this case.

That's a good point. I guess that I was trying to get him to look at the longer term, and that the drop in the market is exactly what he wants right now.