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I recently sold some stock and have $18,000 to put in a rollover Roth IRA. I am having it transferred to Vanguard and the plan is to put $3000 immediately into the Wellington fund and the remaining in money market. My plan is to transfer some every month into the Wellington fund. Dollar cost averaging until totally invested. I am 53 years old so at least 10 years to leave it there.
I recently sold some stock and have $18,000 to put in a rollover Roth IRA. I am having it transferred to Vanguard and the plan is to put $3000 immediately into the Wellington fund and the remaining in money market. My plan is to transfer some every month into the Wellington fund. Dollar cost averaging until totally invested. I am 53 years old so at least 10 years to leave it there.
Good plan or not?
Jasper Hobbs
Just put it all in Wellington. The odds are high that you'll make more money putting it in a fund like Wellington in a lump sum.
I found this really good dollar cost averaging calculator if you want to play with the numbers. I found that even during a rotten 10 year period (March 1999 to March 2009), you still would have done ok with Wellington. An 18K investment in Wellington in March '99 would have turned into $25,939 by March '09, an annualized return of about 3.72%. Not great, but better than dollar cost averaging per my examples below.
If you initially invested $3000 in March 1999 and dollar cost averaged the remaining $15,000 over 2 years ($625 per month), you would have had only $24,636.17
If you had invested the $3K at the outset and dollar cost averaged over 3 years, you would have had only $23,918.82.
If you invested the 3K and dollar cost averaged the rest over 10 years, you would have had only $20,356.95.
And remember, this is during a period of rotten stock market returns and decent, but not great, bond returns. So the results would be much worse when investment returns were better.
Last edited by mysticaltyger; 06-08-2014 at 02:43 PM..
That is every investors dream. Reality usually plays out that you usually give up more in gains waiting because you end up throwing in the towel eventually and buy in higher.
Human nature is such that few folks will committ a lot of funny when things look like they are headed lower when markets are falling.
I thought about total amount right into Wellington but if market has a big correction, it would be nice to jump in at lower point.
Jasper Hobbs
Forget about trying to time it. You will drive yourself crazy and make less money. And if the market does have a correction, you'll be more likely to chicken out and wait for it to drop even further (and then you still won't do it). If you think it's hard to invest a lump sum now, just wait and see how hard it is during a market correction. Trust me, it will be even harder. Very few people can do it. If the market corrects, find a way to add more money, even if it's only $100.
Just put it all in Wellington. The odds are high that you'll make more money putting it in a fund like Wellington in a lump sum.
I found this really good dollar cost averaging calculator if you want to play with the numbers. I found that even during a rotten 10 year period (March 1999 to March 2009), you still would have done ok with Wellington. An 18K investment in Wellington in March '99 would have turned into $25,939 by March '09, an annualized return of about 3.72%. Not great, but better than dollar cost averaging per my examples below.
If you initially invested $3000 in March 1999 and dollar cost averaged the remaining $15,000 over 2 years ($625 per month), you would have had only $24,636.17
If you had invested the $3K at the outset and dollar cost averaged over 3 years, you would have had only $23,918.82.
If you invested the 3K and dollar cost averaged the rest over 10 years, you would have had only $20,356.95.
And remember, this is during a period of rotten stock market returns and decent, but not great, bond returns. So the results would be much worse when investment returns were better.
Great info thank you. I like calculator too and book marking it for future use.
Great info thank you. I like calculator too and book marking it for future use.
Jasper
You're welcome. I also like that calculator. Wish I'd found it sooner!
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