How should I make a large (to me) fund purchase for my IRA?

March 5, 2014 2:04 PM

I have about US$20000 to invest in a total stock index fund in my Roth IRA. What is the best strategy for this purchase? Should I just purchase it all at once now or over some set schedule?

I'm not sure what other details are pertinent. The $20000 is already in my Roth IRA brokerage account. I've adjusted my Roth IRA contributions so I'll be contributing regularly to the index fund. My Roth IRA is only a portions of my savings, and I believe adding the index fund investing is an appropriate level of risk for me right now.

I know we can't predict the future, but I'm just wondering if there is an optimal strategy for this sort of purchase.

posted by sevenless to Work & Money (7 answers total)

If you have all the cash now, the best strategy is always to invest the whole chunk at once.
posted by kindall at 2:07 PM on March 5, 2014

This Vanguard whitepaper suggests that investing everything now, rather than dollar-cost averaging is a better approach.
posted by Arbac at 2:09 PM on March 5, 2014

"I believe adding the index fund investing is an appropriate level of risk for me right now."

You've answered your own question. If that's the right allocation, then choose that. You should purchase it gradually only if you think that the right allocation will change steadily, starting with a small portion in stocks now, a slightly larger portion next weeks, and so on.
posted by Mr.Know-it-some at 2:18 PM on March 5, 2014

"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." -- Peter Lynch

Invest it all immediately.
posted by eas98 at 2:20 PM on March 5, 2014

DCA loses money on average, since each day the market will, on average, go up a slight amount.

DCA pays a small fee in expected value to smooth over volatility for your initial investment.

This 'smoothing' will be trivial for a retirement account. So buy all now.

Depending on your age, choose an index.
If you're in your 20s, probably go for a 90/10 or 80/20 (equity:fixed income)
30s 70/30
late 30s/40s 60:40
late 40s/50s: 40:60 / 30:70

Use this as a rule of thumb to guide you as you read about specific funds, and recommendations.
posted by jjmoney at 2:56 PM on March 5, 2014

Those equity/fixed income splits seem very conservative to me. If you have tolerance for risk, you could consider going heavier on equity.
posted by Dansaman at 10:11 PM on March 5, 2014

Those equity/fixed income splits seem very conservative to me. If you have tolerance for risk, you could consider going heavier on equity.

Agreed. I am 36 and my guy wants me at 80/20.
posted by getawaysticks at 7:59 AM on March 6, 2014