The Annual vs. Monthly IRA Contribution Timing Experiment August 2015 Update.
Annual Contribution Roth IRA
| Shares | Price | Total Cost | Market Value | $ Gain/Loss |
|---|---|---|---|---|
| 614.12 | 18.13 | 11,120.63 | 11,133.92 | 13.29 |
Account Summary:
- No account transactions to report.
Monthly Contribution Roth IRA
| Shares | Price | Total Cost | Market Value | $ Gain/Loss |
|---|---|---|---|---|
| 498.96 | 18.13 | 9,282.99 | 9,046.09 | -236.90 |
Account Summary:
- 08/01/2015 – Contributed $458.33
- 08/03/2015 – Purchased mutual fund (VTIVX)
Annual vs. Monthly IRA Account Comparison
| Account | % Monthly Return | Total % Gain/Loss |
|---|---|---|
| Annual | -5.87 | 0.12 |
| Monthly | -5.85 | -2.55 |
Analysis:
- As you can see from the above charts, the recent turmoil in the markets have pretty much wiped out all of the gains from the Annual Contribution account and put the Monthly Contribution account in the red. Results would be quite different if I had continued the original experiment from 2012 and didn’t start the experiment over in 2014. We would have seen a decrease in gains, but both accounts would still be in positive territory.
- What does this mean for you as an individual investor? Try not to watch the news or read media reports about the stock market. Ignore the sensationalism (along with all the other bad reporting out there) and stay the course. In fact, when people are running scared, you should be diving in head first and scooping up more shares. If you were lucky enough to place a buy order on the morning of August 24, 2015 – now being called the “2015 stock market selloff” or “Black Monday,” you would have made a tidy profit by the end of the day. Of course, not being a market timer, there was no real way of knowing that the even would take place.
- Whether you contribute to your Roth IRA yearly, monthly, bi-weekly, weekly, or even daily – keep at it. If you have just started investing now, or within the past couple of years, it’s going to be a tough road (in the short-run). You haven’t been around long enough to capture to gains from the bounce back since 2008. Don’t be surprised because market tumbles like this past August, and huge ones like in 2008, will happen again. The best strategy will always be to play the math and not the gamble.
- So what exactly happened in August? Everything. Concerns about the growth of the global economy, market instability (especially because of the Greek default and the crash of the the Chinese stock market), and concerns about the future of the the prime interest rate here at home caused a simultaneous reaction. Typically, when stocks fall, commodities like oil and gold rise. In this case, they didn’t. Everything fell, wiping out all market gains in 2015. Of course, two days later investors starting eyeballing deals and began investing heavily again causing a strong market rally.
Talk to me, Goose.