🎯 Unlocking the Power of Dollar-Cost Averaging in a Roth IRA If you're already maxing out your employer's 401(k) match, a Roth IRA should be your next go-to, especially if you're in a low to mid-income bracket. The strategy I'm discussing today is "Dollar-Cost Averaging" your Roth IRA contributions. 💡 Why Roth IRA + Dollar-Cost Averaging? 1. Tax-free growth and withdrawal in a Roth IRA. 2. Dollar-Cost Averaging (DCA) mitigates market risk by investing a fixed amount regularly. 📈 The Advanced Tip: Instead of making lump-sum contributions to your Roth IRA, distribute your new $6,500 annual limit into roughly $542 monthly investments. Investing this way in a diversified portfolio—let's say a total stock market index fund like $VTI —can substantially lower your risk. 📊 Real-Life Impact: Imagine you're investing $542 monthly at an average annual return of 8%. In 30 years, you'd have roughly $770,000, and it's all tax-free upon withdrawal after age 59.5, thanks to the Roth IRA! 🔥 Hot Question: For those who are already doing this, have you experimented with bi-weekly instead of monthly contributions? What differences have you noticed in performance and ease of management? What do you think of this kind of post? Many would also argue for just dumping all your money in asap instead of DCA. A lot of math supports this what do you think? Let's dive deep into this! Your insights could be incredibly valuable to someone else in their financial journey.

Mathematically and statistically speaking DCA doesn't add up. It does help physchologically

Agreed. Which is why I think for public marketing I should push DCA since most people are more shiyach to that since they don't invest anyway. Do you think maybe I shouldn't though? It's like a best next step versus perfect or nothing.

DCA is a strategy. Why do we need to sell this strategy. Just show why putting away money over time is a good idea.

Maybe this needs a warning about the Income Restriction, it could mess up your taxes if not careful.

@orange-pager-65838 if you don't sell a strategy, people will be doing all sorts of irresponsible things. Like investing all their money in one company.

Worth mentioning that Roth 401k doesn't have an income restriction.

A Roth IRA doesn't have an income restriction either. You just need to deposit first in a traditional IRA and transfer it. That seems like a random nuance distracting from the main goal.

oh is that true... I didn't realize.

Yeah once you make over the income limit you can still contribute you just need to do that transfer first.

ah I've heard of this but didn't look into it.

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DCA is a strategy for a specific problem. I have 10K to invest, but I feel like dropping it all into Equities is too much risk. Is that the problem you're trying to solve? It seems to me (based on the rest of the post), that you're really trying to solve putting away money for the future. As apposed to I'm trying to save but I'm risk averse. My point is you're answering a different problem than the one you're trying to solve.

That is good feedback 👍

In terms of once a month versus bi-monthly, I switched to bimonthly for my 529s as I felt just once a month was always catching a high point (didn't check that mathematically, was just a feeling). Obviously these are small changes throughout the month, overall it wouldn't make much of a difference. But this past year we've had some major monthly movements in the market, so it feels better getting in at multiple points.

For anyone that didn't follow all the jargon in the last two threads (thanks for that feedback I need to hear that so everyone can benefit!)... Here is a quick summary point people need to know about DCA. While DCA is great for making people feel better about investing, the best advice is to invest as soon as you have the money instead of spacing it out regularly. Simpler words: invest as early as possible so you don't miss the next big market jump!

I hate to be the one to point this out, but the Hasidic Jew next to the huge pig and the coin with a Megan David - it doesn't look good.

Agreed. You should have seen how much worse all the other images were 😂

Wanted to prove this to myself so I made a monte-carlo spreadsheet https://docs.google.com/spreadsheets/d/11s4qy5cWUiK6zNuQjY-FDyEgiMk67Pjg-Mah4PuwX0k/edit?usp=sharing

Proving not to do DCA?

Yes, seems to favor upfront 99% of the time. Unless I set the shares to crazy volatility.

Beautiful!!

How can I stop getting notifications for a thread I replied to once? It’s so annoying.

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