I am ready to begin investing my roth ira using the foolish four approach. However, because I can make my maximum contribution of 2K at the beginning of each year in January, is there any merit in hanging out in an index fund until then, so that I have the most money working for me each time I update my portfolio?Or am I, perhaps, thinking about this too much?Shawn
>> because I can make my maximum contribution of 2K at the beginning of each year in January, is there any merit in hanging out in an index fund until then, so that I have the most money working for me each time I update my portfolio?------------------The general rule is that it's best to invest as soon as you have the funds available, and this applies all the more to tax-deferred investments like IRAs.So it would certainly be best to put the funds into the IRA as early in the year as possible. What you do after that is the real question.If you're planning to invest in a Foolish Four portfolio, there seems to be a little advantage in purchasing the stocks around the beginning of the calendar year. If I had not already made my 1988 contribution but had the funds to do so now, I'd make the contribution immediately, and then either hold SPY or an index fund in the IRA until the end of December, or purchase the FF now but hold for 18-19 months so that the next update would take place on a calendar-year cycle.Another consideration is that in a new IRA, where you have a maximum of $2,000 to invest, it may not make sense to purchase four stocks. That might be an argument for using an index fund or SPY until January, when you can add another $2,000.
The answer to your question and some you haven't thought of yet are in Tom Sheard's book The Unemotional Investor. Its a super book and expounds on the Motley Fool Investment Guide.Good luck
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