I've been contributing to my Roth IRA for a few months now. I started it at the beginning of this year so I made a lump sum contribution for 2006 and started putting $200-400 in it on the 1st of each month. I know one of the benefits of dollar cost averaging are that you sometimes buy high, sometimes low and in the long run it will hopefully even out. I was just wondering if you'd be better off (if you have the cash available) to do a lump sum investment as soon as you can contribute for the year? You might pay slightly more per share than using dollar cost averaging but you will also have more invested and sooner so you have more time to earn.

It just seems like in the long run, the market goes up so why not get more invested sooner. Thoughts?

Dollar cost averaging is more important when you're trading. Over the long term, if its a retirement account, what you're doing essentially IS dollar cost averaging by making monthly deposits and buys.

I agree with Cactus, also with DCA you buy more shares when the market is down.

Studies I have looked at show that the lump sum wins out over DCA in most scenarios. DCA is recommended if you have a weak stomach and will have "buyer's remorse" if the market tanks after you put in your lump sum. If you maxed your Roth IRA on January 1 of each year, you are essentially DCA over the long term anyways.

If you have the money, the earlier you invest it the longer it will work for you. If it were me I would make a full years deposit to my IRA on Jan 2.

I should just join the early-investment bandwagon.

Let's assume that investments generally travel on an upward direction over time. That is, after all, the reason we're investing. If that's the case, then money invested sooner is going to return more than money invested later. Therefore, if you can swing it, go for Jan 1 every year.

If you have to pay a transaction cost for each purchase (likea commission), then that would tend to encourage making fewer transactions as well.

Lump sum if you have the money. Otherwise you are bettign that the fund you are investing in will show a negative YTD return sometime within the year.

Thanks for the advice...I'm still getting into a routine with the IRA investing. I'm thinking I'll dump up to the limit into my 2007 IRA this week and then set up a subaccount with ING where I pay myself each month for next year's IRA. Then when 2008 rolls around, I can put that saved money in the IRA. Rinse and repeat.

what studies show lump sum trumping?

I hope this link works:

crazy long link to schwab pdf

thanks.

That's exactly how we do it ...
Remember to save $5K for next year ($10k if married)