Why I MAX OUT my Roth IRA on JAN 1ST | Dollar Cost Averaging Vs. Lump Sum Investing
In 2021, I decided to max out my Roth IRA as a lump sum investment on January 1st instead of dollar cost averaging every month like I’ve done in the past. In this video, I explain the reasoning behind my decision and whether you should be doing the same.
Dollar Cost Averaging is the process of investing a fixed amount of money into the market at regular intervals, usually on a monthly basis. For eg. investing in your 401k. It reduces the emotional component of investing by taking away from market timing.
Lump sum investing is the process of investing all of the money you have in hand at once. For eg. investing a bonus from work in one go. Since you give your money more time in the market, there is potential for higher returns.
From Vanguard’s study, lump sum beats out DCA 67% of the time. This is why I decided to max out my Roth IRA on Jan 1st in order to gain exposure to the market as soon as possible. Only time will tell whether this was the right decision in the current market :)
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I want to share stories and lessons learned while first moving to America, planning my journey to financial literacy, and adopting best practices into my life. As an international, it was difficult to find relevant resources to understand the aspects of life that were different in a new country. This channel is a comfortable space to have those discussions and help each other out!
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The advice provided in this video is for informational/entertainment purposes only. The creators take no responsibility for any actions or decisions you may take based on the contents of the video. Please consult a professional for strategies related to your specific needs.
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