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Author: omalleypm Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: when should I make my IRA contrib? Date: 3/10/2003 4:57 PM
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The bonus check should be here this week, so I am getting ready to make my 2003 Roth deposit. We have 12 years to retirement. Should I:

1. Invest it now.
2. Wait until the war starts
3. Wait until the war is over.

Any opinions would be appreciated.
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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35873 of 75335
Subject: Re: when should I make my IRA contrib? Date: 3/10/2003 7:23 PM
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I opt for "invest it now". I remember reading somewhere on this website a study done on the optimal and least optimal times of investing a lump sum in the market. That is, the optimal was correctly picking the lowest point of the market each year to invest and the least optimal was picking the highest point. The differnce was around 2% per year over about 30 or 40 years. That was the difference in picking the extremes EVERY time. The average is going to be less than that. Not that big of a difference to get too stressed out about.

JLC

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35874 of 75335
Subject: Re: when should I make my IRA contrib? Date: 3/10/2003 7:37 PM
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Don't try to time the market. You can't outsmart it. Invest the full amount now and focus on things you can control: asset allocation, income maximization, fee and tax minimization, etc.

Nick

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Author: billyturtle Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35877 of 75335
Subject: Re: when should I make my IRA contrib? Date: 3/10/2003 8:33 PM
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Or you could send $500 every month for the next 6 months. If things head down you'll come out a little bit ahead. If they head up you'll end up a little bit behind. The point is in the long run it doesn't matter. It's the compounding of returns that you need to make your money grow Grow GROW and that takes time. More time in the market equals more money.

Just remember, as IBM tells us, "There is no magic crystal ball."

billyturtle

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Author: Seapickle Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35878 of 75335
Subject: Re: when should I make my IRA contrib? Date: 3/10/2003 8:59 PM
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omalleypm

I know what the previous three fools have posted is true, but I can appreciate the difficulty of putting money into the market right now. Who knows when the war will start, how long it will last or what the exact effects will be. I wish I knew.

I am in the same boat as you with my 2002 contribution. I have committed some of it to DODGX but am waiting to figure out what I will do with the rest. I put most of my 2002 401k (Vanguard) contributions into a money market last year just to feel a little better after the beating I took. I am putting it right back in this year at a lower cost. It may not be the foolish approach but it was nice to take a little break.

Good luck with whatever you decide.

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Author: TMFQue Big red star, 1000 posts TMF Money Advisor Member Old School Fool CAPS All Star Global Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35882 of 75335
Subject: Re: when should I make my IRA contrib? Date: 3/11/2003 1:02 PM
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The bonus check should be here this week, so I am getting ready to make my 2003 Roth deposit. We have 12 years to retirement. Should I:

1. Invest it now.
2. Wait until the war starts
3. Wait until the war is over.

Any opinions would be appreciated.


Hello,

The most important thing is that you make the contribution. Regarding your 3 choices, another possibility would be to invest a third now, a third when the war starts, and a third when its over. A mini-dollar cost averaging strategy based around your particular concerns.

-barry

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Author: BookmFool Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35883 of 75335
Subject: Re: when should I make my IRA contrib? Date: 3/11/2003 1:35 PM
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Greetings omalleypm, you may find William Bernstein's opinion on the DCA vs lump sum investing:

The payoff is higher for a 12-month period of DCA. Lump-summing lost money in 114 12-month periods, and DCA-12 beat lump-summing in 100 of them, 64 by more than 5%.

http://www.efficientfrontier.com/ef/997/dca.htm

HTH

Bookm

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35884 of 75335
Subject: Re: when should I make my IRA contrib? Date: 3/11/2003 4:41 PM
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To clarify your quote, Bernstein found DCA to be a losing strategy vs lump sum investing. His words:

"I looked at the 523 rolling 6-month periods within the 44 years 1953-1996. Lump-summing came out only 1.11% better on average than DCA-6 (per use of DCA-6, not per year). DCA-6 came out better than lump-summing in 199 of the 523 cases. "

He goes on to say that this doesn't matter, since if you give up the lump sum upside, your investment will be less risky in the short term. Well, it matters to me. If I'm worried about equity risk, I'll diversify into other asset classes.

I like Bernstein, but this is a weak article. He's relying too heavily on historical patterns, poking around with the numbers until he finds a time period where DCA, while still inferior to lump summing, isn't *that* bad (he rejects 12 month and 36 month DCA). And he makes statements like:

"DCA is not for people who consider themselves competent market-timers...the DCA choice is for people who fear that the market may drop drastically at any time, but do not feel competent to judge whether that is more or less likely now than at some other time. "

So let me get this straight...DCA is for people that can't predict what the market will do, and yet who have a premonition the market is going to crash sometime in the next six months (his DCA timeframe). These investors have crystal balls, but they're a little cloudy, I guess.

I still don't buy DCA. I invest the max amount I can each month after paying my expenses.

Nick








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Author: billyturtle Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35888 of 75335
Subject: Re: when should I make my IRA contrib? Date: 3/11/2003 7:13 PM
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I still don't buy DCA. I invest the max amount I can each month after paying my expenses.

Monthly investing is dollar cost averaging. Now if you saved up and dropped your $4000 2004 IRA contibution in the account on January 1 you would be lump sum investing. Some would even argue that putting money in annualy is DCA over the very long term of your investing life. But we'll leave that point to those who like to pick out nits.

billyturtle


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