How to fund IRA?

[Taribor]

I was planning to use my tax returns to pay most/all of my allowable IRA contributions for 2008 in one shot. Is this smart or is it better to invest equal amounts each month in order to take advantage of cost-averaging?

[buzz]

I was planning to use my tax returns to pay most/all of my allowable IRA contributions for 2008 in one shot. Is this smart or is it better to invest equal amounts each month in order to take advantage of cost-averaging?

Some experts recommend DCA, some say go ahead and invest the lump sum. In the long run, the important thing is to get it in there.

One idea would be to invest in a money-market within the IRA and wait for a down-turn in the market to buy stock.

[Fern]

If you want to maximize your IRA's chance to grow, I would make the contribution all at once, in one lump sum, EARLY in the year, like in January, rather than waiting til later. the longer your money can sit there tax-deferred and grow, the better. If you wait til June, you're missing out on 6 months worth of tax-deferred growth.

Now if, say, you had plain old taxable money sitting in a money market that you wanted to invest, but it wasn't going into a tax-deferred account like an IRA or 401k, you just wanted to invest it as taxable savings into a stock mutual fund, if you have time to keep an eye on the market, i might delay investing until i saw a market correction of a few hundred points, say. If i see the Dow has dropped by a large amount in the a.m. or early afternoon, i keep an eye on it and if it's still down by about 3:45 p.m. (markets close at 4 pm), then i would make a transfer into the stock mutual fund, taking advantage of the dip. Your purchase price ends up being whatever the Dow closed at end of the trading day, so you can feel pretty sure that things won't change too much in 15 minutes time. It's a little bit of market timing, except that when i do it, as i suggest you do, i don't trade in and out of funds. Once i move it into a stock fund, it tends to sit there for years as part of my overall asset allocation plan, which doesn't vary much from year to year.

[JasonEngler]

Which online broker(s) would you recommend using?

[kristinecfp]

I agree with Buzz... the most important thing is that you start saving!

However, dollar cost averaging is a great idea because it takes the emotion out of investing. Most people would feel pretty discouraged if they invested a lump sum then saw the market go down immediately afterwards. DCA is a great way to avoid this situation from occurring.

JasonEngler asked which online broker would you recommend. It depends on what you want to invest in and how often you want to invest. If you're just starting out and you will be investing in mutual funds, T. Rowe Price is a great option because they allow you to invest $50 a month in a Roth IRA or Traditional IRA (investment choices are limited with this option I believe). If you are wanting to invest in stocks, you would want to look for a broker with low trading fees, like Scottrade. You might give us some more info about how you will be using that broker, so we can give you some suggestions based on your goals.

[JasonEngler]

JasonEngler asked which online broker would you recommend...You might give us some more info about how you will be using that broker, so we can give you some suggestions based on your goals.

Thanks for your response!

I am looking to invest semi-monthly (each payperiod) in an IRA (Roth or Traditional) but don't have a lump sum to get started. Do you recommend one with low fees and allows me to start with as little as $50 a month and $250 initial deposit? My employer chose Fidelity to handle our paychecks; however, they require $250 monthly in order to open an account. I can't really afford that amount getting started.

[buzz]

Thanks for your response!

I am looking to invest semi-monthly (each payperiod) in an IRA (Roth or Traditional) but don't have a lump sum to get started. Do you recommend one with low fees and allows me to start with as little as $50 a month and $250 initial deposit? My employer chose Fidelity to handle our paychecks; however, they require $250 monthly in order to open an account. I can't really afford that amount getting started.

If you have an off-topic question, please open a new thread. To answer your question, T Rowe Price has Automatic Asset Builder which waives minimum initial deposit if you contribute $50 per month or more.

[bucketheadmn]

Thanks for your response!

I am looking to invest semi-monthly (each payperiod) in an IRA (Roth or Traditional) but don't have a lump sum to get started. Do you recommend one with low fees and allows me to start with as little as $50 a month and $250 initial deposit? My employer chose Fidelity to handle our paychecks; however, they require $250 monthly in order to open an account. I can't really afford that amount getting started.

You can actually open up a IRA at Fidelity with no cash. You just can not buy any mutual funds in your IRA at Fidelity with less than $2500 or $200/month auto invest feature. One thing you can do though is put the $50 into the IRA account and let it sit in the core Money Market fund until you can either do the $200/month or you reach $2500.