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Monday, May 5, 2008

Retirement funds - DCA or no?

Thanks to a generous family member, I came into a bit of money in the past week. It was enough to fund my Roth IRA for the year with a bit leftover. So of course, step one was funding my Roth. I couldn't decide whether dollar cost averaging was the way to go or not. I did know that I wanted to add a fund to my IRA - a fund tracking the international markets - and at the financial institution I use, that required a minimum of $3000 to open. So that was an easy decision. I decided to just use the additional $2000 to purchase additional shares in a fund I already own. I thought about it for a while and decided to just drop all $2000 at once rather than do dollar cost averaging. Basically, I just wanted to have it done and not worry about it anymore.

With the market fluctuating as it has the past few months, I've really been ignoring a lot of my investment accounts. I know that I have chosen good funds for my Roth IRA. I know that I've chosen good funds for my TSP (not that there are a lot of options). The market is what is is, and I can't change it, so I might as well not worry about it. Besides, these are retirement accounts. I'm 27. I won't need them for quite some time.

When the market is good, it's fun to check in on retirement accounts and see how they are growing. But when the market is not so good, it can simply be added stress to log-in to an account and see how much money you've lost in the past few days. I've decided that's not added stress I need.

I do check my retirement accounts every month when I calculate my net worth for the month. And when the value is up, I'm happy, and when it's down, I just shrug and know that things will get better.

So that's why I decided against dollar cost averaging for the last $2000. I don't want to have to worry about it. There's no way to predict which method is better, though my hope is that the market is on a rebound and will keep bouncing back. But for my mental health, it was the right choice.

(Of course, what to do with the rest of the money is another story for another post.)


asgreen said...

I try to think about my retirement accounts as getting a good deal. That way I'm a little less depressed when I see it has gone down.

Tom said...

One easy way to DCA without worrying about it is to do automatic investments over the remainder of the year. I started my Roth with Vanguard last year and did the lump sum of $3000 to meet the minimum, then did automatic investments from my savings account for the rest of the $2000. It's an easy way to DCA!