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Hey all, I'm wondering how often you think I should invest into my taxable brokerage account. Currently, I am setting aside the money and investing it once each quarter (this is on top of investing in our 401k/403b plans). I budget to set aside $2000/month and then I am usually able to come up with an extra $1000/quarter on top of that.

If this were being placed in retirement accounts, I would get it invested as soon as possible. But since it is for a taxable account, I have been doing things quarterly to keep my number of transactions low. The main reason I have tried to keep the number of transactions low is for future tax calculations...but maybe this is not as important as getting the money invested.

So...
Should I stick to quarterly investing?
Should I invest monthly?
Or is there a threshold I should use? (When I save that much, I invest.)

Any thoughts are appreciated.

Acme
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Personally, I am inclined to agree that the headache of keeping track of all the transactions is best kept to a minimum, so you should invest on a quarterly basis. I think that the extra amount you would earn by investing say, on a monthly schedule, would be minimal.

But lets analyze it for the sake of argument. Let suppose your real rate of return is 8%- probably higher than what you will get from the market, but a reasonable estimate. Now lets compare quarterly, monthly, and yearly.

If we examine this monthly, quarterly, and yearly then we find:

After 1 year:

monthly: 24867
quarterly: 24708
yearly: 24000

After 5 years:

monthly: 112056
quarterly: 111339
yearly: 108146

After ten years:

monthly: 360248
quarterly: 357940
yearly: 347677

So you can see that after ten years, you are down by about $2308 if you go quarterly instead of monthly. You are down $12,571 if you go yearly instead of monthly.

Comparing quarterly instead of monthly, you are out 0.006 of your capital, or less than 1% by changing strategies. I personally don't think this is worth it- you would be better off spending that time on paperwork researching new investments, which would increase your return far far more than a tenth of a percent a year.

However, it is a bit better to go quarterly than yearly, to the tune of 3% of your total asset base. Again, not a huge thing- you would be better off again with researching better investments. However, quarterly seems like a good strategy.
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I do mine monthly, and am happy with that. It's more even in terms of up & down of market.
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I just started taxable investing, but my plan is the same as yours, Acme - to invest quarterly to minimize transaction-related record keeping. I also specified that dividends and distributions be paid into a sweep account instead of automatically reinvested, again to minimize the number of transactions I need to keep track of.

The money that's "waiting" to be invested is in a tax-exempt MMF with a taxable-equivalent yield of 5.4%, so it's not lying completely fallow.

Another reason to do less frequent but larger amount investments is if you are investing via an ETF with a brokerage that is not commission-free. I'm not there yet, but if/when I invest with ETFs I will also minimize the frequency of investments to save on commission costs.

BTW, I made my first ever taxable investment on Friday Oct. 19 -- and the next day realized I'd made my first jump into the market on the 20th anniversary of the '87 Black Monday crash. I kind of like that!

FIgirl
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Hey all, I'm wondering how often you think I should invest into my taxable brokerage account. Currently, I am setting aside the money and investing it once each quarter (this is on top of investing in our 401k/403b plans). I budget to set aside $2000/month and then I am usually able to come up with an extra $1000/quarter on top of that.

I don't think the number of transactions matters. In my taxable account I have multiple DRIPS (no longer adding to the positions) and an index fund. Over 6 years I have accumulated over 500 shares in 109 transactions in my taxable mutual fund (to include reinvestment of dividends and cap gains distributions). I keep a simple ledger style spreadsheet that makes figuring out cost basis of sales very easy (I use FIFO for ease but you can pick whatever lot you wish to sell). Not a lot of work... actually, other than entering each transaction when purchasing, there is no more effort in figuring out cost basis when selling with multiple transactions.

I invest in my taxable account once a month with occasional extra purchases; however, I currently have more cash on hand than I'd like and have set up automatic investments to purchase every 10 days for the next 15 months or so (I prefer to DCA and this will also keep my cash levels more stable than a lump purchase and then reaccumulating cash through savings).

My vote, do what you want without worrying about it. Just be disciplined enough to punch your purchase info into a simple spreadsheet when you get your statement. All you really need to capture is the date, amount invested, and number of shares purchased.

FoolNBlue
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(I prefer to DCA and this will also keep my cash levels more stable than a lump purchase and then reaccumulating cash through savings).

There are two major uses for DCA. One is good, one is not.

(1) A way of imposing and enforcing self-discipline and discarding emotion. Unemotional self-discipline is essential to ALL good investment plans, and this is a relatively easy way to do it. Excellent idea.

(2) An investment strategy, as an alternative to putting an available lump sum into the market all at once. An investment strategy is also essential, but this is not a good one. It's a form of market timing, but strangely, one that doesn't even look at the market!
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<<(2) An investment strategy, as an alternative to putting an available lump sum into the market all at once. An investment strategy is also essential, but this is not a good one. It's a form of market timing, but strangely, one that doesn't even look at the market!

>>


I think it's unreasonable to label dollar cost averaging a form of market timing, since as you note it doesn't consider the state of the market.


Instead, I consider it a form of diversifying an investment over time.


If I have a large lump sum, I tend to feed it into the six or eight monthly DRIP purchases I have going pretty much all the time. Smoothing out those investments over time works better for me than dumping it in willie nilly regardless of the current price, or seeking out a low price, which would be market timing.


I often maintain DRIPS for many years. I look for good stocks and then start investing. If my evaluation of the stock turns rotten, I'll sell out. If it developes an irrational exuberance, I'll sell. But mostly, I keep making monthly investments.




Seattle Pioneer
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(2) An investment strategy, as an alternative to putting an available lump sum into the market all at once. An investment strategy is also essential, but this is not a good one. It's a form of market timing, but strangely, one that doesn't even look at the market!

Lump sum investing is also "market timing" without even looking at the market too.

I understand the logic behind investing as soon as possible (lump sum) because the market tends to trend upwards so by delaying purchases you are probably foregoing more up days than down. While the original question did not refer to DCA (btw investing as one receives funds is not "DCA" it is a bunch of lump investments as funds are available) the accumulation of funds prior to investing also amounts to market timing and theoretically will reduce yields due to the same logic.

That said, I think the market is fairly high right now and will not likely have much net gain in the next 15 months. I am not comfortable investing the entire lump sum (equal to approx 20% of that account) all at once right now. As I also mentioned, by spreading the buy over the next 15 months it keeps my cash position more stable.. it will go down gradually rather than all at once with a recoupment as I save additional cash. It also gives me the option to use the excess cash on hand to take advantage of any opportunities that may arise.

This tangent is a bit off topic from the original question. In response to the original question, I suggested investing as many times as you wish without regard to the number of transactions. I pointed out that I am intentionally creating more transactions by DCA my purchases.

FoolNBlue
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That said, I think the market is fairly high right now and will not likely have much net gain in the next 15 months. I am not comfortable investing the entire lump sum (equal to approx 20% of that account) all at once right now.

Here you are explicitly talking about market timing. Since you have specific reason to think this is not a good time to invest in stocks, you are going to... invest a little bit in stocks? Why are you putting any money at all in stocks?
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I think it's unreasonable to label dollar cost averaging a form of market timing, since as you note it doesn't consider the state of the market.

When you put money in the market later, rather than now, in hopes that later will be a better time, it sure looks like market timing.

And I am not objecting to market timing as such.

It's half-hearted market timing - "later might be better, so I'll put PART OF my money in".

It's market timing without looking - if you aren't going to look, take the bet that gives the best long-term-average return; that bet is, put it all in.

And now in this thread we have an even worse form: someone who actually IS looking, deciding that this is a bad time to put money in, and putting money in anyway! (At least that person is putting only part of the money in - but wouldn't it make more sense to hold ALL of it back for now?)
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Here you are explicitly talking about market timing.

I never said that I wasn't engaging in market timing. There is no arguement but thanks for reiterating the fact.

Why are you putting any money at all in stocks?

Because it's my money and I can... that and I think I'm smarter than (almost) everyone else. ;)

FoolNBlue (Probably right about the smarter thing....)
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My vote, do what you want without worrying about it. Just be disciplined enough to punch your purchase info into a simple spreadsheet when you get your statement. All you really need to capture is the date, amount invested, and number of shares purchased.

Thanks FoolNBlue. Since I use Quicken to track all of this (and have for years), it should not be a big problem to keep everything in order and track all of the key data.

Acme
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