Apr 11 2013

Making several investment deposits in a month, rather than one

Money

Have you heard about the record highs the stock market is seeing lately? Our IRA and 529 account balances have shot up, reflecting the market. It looks great on paper, but since we won’t be withdrawing the money any time soon it’s … only on paper.

We’re continuing to invest on a regular basis. Prices are high right now, so that means I’m buying fewer shares with my dollar than I could if prices were down. Ya know?

One strategy experts often tout to make the most of market fluctuations, is to do something called dollar-cost averaging.

An example, with numbers pulled out of thin air and simplified (ignoring taxes, fees, dividends, etc.):

On the 1st of the month, a share costs $10. You have $100 to invest, so you were able to buy 10 shares.

On the 15th of the month, a share of that same fund costs $10.50. Your account balance from the investment you made on the 1st of the month would be worth $105. With another $100 to invest, you can now only buy 9.52 shares at $10.50.

So, with those two investments you now have $205 in your investment account and own 19.52 shares of the fund.

Follow that?

If you buy when the prices are low, you can buy more shares for your dollar. When the prices are high, your value is higher of course…but when you buy when prices are high, you can buy fewer shares for your dollar.

Let me make one thing clear right now (if I can get any point clear in this post): I am not talking about trying to time the market. I can’t look at a news report and think, “Well, this looks like prices are about to jump in the coming days. Better buy now!” or “We are topping out. Better stop investing for now/or sell.”

No. I can’t time the market, and Wall Street traders can’t do it consistently, either.

We don’t know when prices will be low, or when they might make a move up. When people do try to time the market, they can get burned, missing a stock market rally and missing out on big gains.

What I’m talking about, is to use these normal price fluctuations to your advantage.

Rather than make one annual lump investment to your IRA (or any investment account) and calling it a day, I’m more into investing multiple times per month. Some months, I’ll buy when my fund is lower-priced and I get more shares. Other months, the prices are higher but I’m still adding more shares to my portfolio.

What’s more, my husband and I invest on different days of the month.

I’ve got the 3rd and the 16th, and he has the 9th and the 23rd. Just picked those dates that are sort of spaced out — no real reason.

Also, we have our kids’ 529 deposits automatically sent each month, but since my only option is a monthly or quarterly contribution for those automatic deposits, I just have Johnny’s sent on the 10th and Vivie’s on the 17th.

Over time, one account might do better than another, or it might not make much difference at all.

I like to view our family’s investments collectively, and try to maximize the money as a whole.

P.S., last year our IRA contributions were a bit lopsided. We didn’t have the money to finish them off until toward the end of the year, so that’s when the bulk of our contributions were made. Do what you can! Investing something, at any time, is better than nothing, no?

P.P.S: It’s really important to note if your investment company charges you fees per transaction. If you’re hit with a fee every time you make a deposit, that can add up fast. Might be worth seeing about switching to a different investment firm.

How about you? Do you spread out your investment contributions? What’s your strategy?

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2 Responses to “Making several investment deposits in a month, rather than one”

  1. My husband and I both have 401k’s through our work, IRA’s through our bank and then I have an account with sharebuilder that money gets deposited in once a month. So I guess in a way we are spreading out investments. I really need to check around and see what companies are out there and what their fees are. I know with Sharebuilder, I pay $4 a month and my bank charges us $50 a year for each IRA which they take out of the account. Investing is just one of those things that seems scary and complicated to me. I feel like we’re just throwing money out there and hoping it adds up instead of actually having a plan.

  2. May I recommend switching your IRAs to Vanguard? WAAAAAAAY low expenses, and better investment options than a bank would have. Something to consider!

    For instance, my IRA is in a fund with a .18% expense ratio. That is super duper low.

    There are other low-fee companies out there as well, but Vanguard is my fave.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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