When should you contribute to an IRA? Is it better to contribute on a monthly or an annual basis?
Lump sum investing (LSI) and dollar-cost averaging (DCA) is a highly visited topic. Various studies and back testing have already proven that lump sum investing will outperform dollar-cost averaging over time.
However, for most investors, a large lump sum investment is out of the question. Most of us invest periodically in one form or another. It’s more feasible for us to invest a large amount annually, or smaller amounts monthly. That’s what this experiment is all about.
The Annual vs. Monthly IRA Contribution Timing Experiment was developed to see how investment timing affects a Roth IRA, and which contribution method will give you a greater return, in the current climate of the stock market. It’s also a great way to show a typical person how easy it is to get started with retirement investing in a tax-advantaged account. With just one low-cost mutual fund, an investor can have a basic diversified portfolio that will serve their needs for a lifetime.
You can get updates on the experiment, view historical results, and learn more about the experiment on this page.