Ramjet wrote: ↑Thu Aug 05, 2021 2:50 pm
Reminder that Hedgefundie suggested: 1) a one-time contribution, 2) to view it as a lottery ticket independent of your normal portfolio, and 3) not to risk more than you can afford to lose
These are really good rules to help you stay the course for the long haul, especially for something as volatile as this
Why are so many people making monthly contributions?
I hope this isn't your entire portfolio
I can't speak for other people. But I'm making periodic contributions for several reasons:
First, because I'm trying something new and want to experience how it works, for better and for worse, before I commit more than 1% of my investible assets to it. I started with $3k, which is literally a rounding error away from 0% of my investible assets, and will dollar-cost-average into it over the next several years. You can analogize this to an infant wading into a swimming pool for the first time.
Second, because I'm market-timing, in a sense. The stock market is at an all time high. The bond market has had a long bull run. And this strategy has a much higher likelihood of experiencing an unrecoverable loss than investing in a total market stock fund. Accordingly, I'm hedging my bets. I'd be more likely to lump-sum into this strategy with a few percentage points of my investible assets if p/e10s were lower, interest rates were higher, and the market had just experienced a 50% haircut. But that's not where we are. So, I'm being cautious.
Third, because it may reduce my tax burden for the first few years. I'm doing this in a taxable account for reasons that are beyond the scope of this comment. And I'm hoping that I can reduce if not avoid short term capital gains taxes for a few years by making periodic contributions.
It may turn out that I would have made more money lump-sum investing. If that's the case, great: I will have learned something, and I will have made more money than I would have made by investing my disposable income into VTSAX, as I have for the past 15 years. If that's not the case, okay: I will have learned something, and I won't have lost as much as I would have had I leaped into this with a more significant lump-sum.