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I have opened a taxable account with Vanguard as of 2 weeks ago. I deposited the minimum 3k to start off (VTSMX) Total Stock Market Index but my question is this...Being only 21, with a lump some of money (around $15k), is it best to purchase this stock all at the same time?
-Other alternatives are purchase 3/4 and DCA the rest
-Start DCA at 3k
My theory crafting is this, since it'll sit in the account untouched for 20+ years anyway... will it matter? Odds are it can go up from here, or perhaps down with the "fiscal cliff" as well. Thoughts as to what others do when they have money to deposit?
Thanks in advance, always...
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- Joined: 14 Nov 2012
You have stepped into the debate of "Do I Lump Sum now or Do I Dollar Cost Average?" If you use those as search terms, you will see some lively debates. Please go read them and then come back to this thread with a short write up of which one is better to do, how much better it is, and what you are going to do. Thanks!
It's all about market timing, uh, I mean rebalancing, uh, I mean opportunistic rebalancing, uh, I mean short-term opportunistic rebalancing due to a short-term change in one's asset allocation.
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livesoft wrote:You have stepped into the debate of "Do I Lump Sum now or Do I Dollar Cost Average?" If you use those as search terms, you will see some lively debates. Please go read them and then come back to this thread with a short write up of which one is better to do, how much better it is, and what you are going to do. Thanks!
Also tell us about your emotions and how you feel about regret. Regret = "I could have had a V-8!"
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You are so young I do not believe it matters. But, sometimes this is an emotional decision for some people, so DCA if it makes you more comfortable. Either way you may want to wait until after Dec 31st or until the fiscal cliff debate ends IF you are nervous, but again it will not matter much if you intend to leave that money untouched for 20+ years
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Awesome, thanks for pointing me in the right direction livesoft.
So for a brief summary of what I picked out of the few articles I read was that we do not know whether the market will go up or go down. A bonus to depositing it all in a lump sum would be the dividends rather than slowly making contributions every month. A plus side of DCA would be being able to buy more shares at a cheaper price when the market goes down. However, there are more positive returns each year than there are negative. Which would leave me to believe lump summing it all would be the best choice for myself. I do see how things can go either way, but with my time version, I'm open to more risk than many others would be. So what I'll end up doing perhaps is waiting till the fiscal cliff debate ends and then making the deposit.
Thanks again for showing me those post.
As for regrets, I have none. I'm not one to look back and dwell on how things could have been
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Congratulations on being off to such a great start at age 21. Most people your age have negative equity and aren't thinking about investing. There is an answer to your question that is quite easy. It makes no difference. This 15K represents a tiny amount of what you will contribute over the years. Plus, 40 years from now, it will make no difference if you invested this over a year or DCA. If I were you, I would put it all in right now, but possibly use the Total World Index or split it between TSM and TISM. The lump sum investment will give you a good test for how your stomach takes a bear market should it occur to help inform future asset allocation decisions. Or it will give you a sense of how you handle a major upswing in the portfolio and whether you feel the need to take profits. If you can hold the course and do nothing in either case, it will be a very good training session for you.
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