fatespawn wrote: ↑Thu Dec 17, 2020 10:49 am
https://investor.vanguard.com/investing ... t-lump-sum
sailaway wrote: ↑Thu Dec 17, 2020 10:01 am
Why is this better than investing that money as it comes in, then using new monies to fund the IRA?
"Time IN the market" always beats "TIMING the market." If you have a lump sum to invest, waiting to dollar cost average is akin to market timing. If you don't have a lump sum January 1 then dollar cost averaging is a fine technique. But if you can swing saving $6k through the year in savings, lump sum January 1 investing will - on average - pay you more.
This is not true lump sum investing if you are saving up the $6k throughout the previous year. If you got a $6k bonus on January 1st, then put it in Roth that would be lump sum. I believe I have been guilty of this thinking in the past as well.
If you had three options to invest starting in Jan 2021, with $1k excess per month, either:
a) $500 per month to both Roth and Taxable,
b) $1000 per month to Roth until full then $1000 to taxable
c) $500 per month to taxable, save $500 per month and earmark it for Roth in January when you have $6k,
[b > a > c] Option C loses because of missed opportunity for gains. Option B beats A because Roth tax treatment equals higher expected returns. (Same AA across accounts).
If you already have the $6k to lump sum (as I do - MFJ so $12k), then you did option c *last* year (as I did). Going forward the best path (for the above example) would be:
Lump sum Roth Jan 2021. Don't save $500 per month for Roth. Instead put $1000 in taxable monthly all year. Next Jan, start putting $1000 per month into Roth until full, then switch to $1000 per month in taxable. I think Triple Digit Golfer earlier in the thread has it correct. All excess cash invested in a timely fashion is probably best.