Need Some Advice On My Dca Strategy (dollar Cost Averaging) For My Ira?
I started saving early with a 401k I started at 22. Now I’m 26 and have since rolled over the original 401k to an IRA, and with the recession and all I’m starting to suffer from paralysis by analysis 
At the moment I have a little over half of my cash in a money market fund, and a little less than half in four highly rated mutual funds.
My original intention was to transfer small amounts from the money market fund into all four mutual funds monthly, however I’m now faced with the minimum buys allowed for additional purchases into the mutual funds. With those minimums, my DCA strategy would last all of three or four months. Considering the markets still seem a little shaky, I’d like to stretch my DCA strategy for 6-12 months minimum.
So…
I’m now thinking, rather than invest evenly into all four mutual funds, just invest into one mutual fund one month, another fund the next month, etc. I only worry this will leave my portfolio unbalanced month to month (though not by much)
You are definitely over analyzing. If you want to stretch out your repurchase period, the simplest way is to increase the period between purchases from one month to six or eight weeks. Your way would also work. It gives you more granularity in your purchases, but with the risk of picking unfavorable times for buying the individual funds.
I also think you are in real danger of stretching this out too long, especially if you pick 12 months for your repurchase period. U.S. stocks peaked last October, so the downturn has already lasted five months. Add a year to that and you’re looking at a 17 month bear market. That’s certainly not unprecedented, but it is unusually long. If you shoot for a more average length decline, a three or four month repurchase schedule might work out very well, indeed.
I like your idea of investing in one a month, as that will extend your strategy. Sure, it will leave your portfolio unbalanced for the short-term, but it will not be enough to affect it over the long-run. This strategy will accomplish the same results as investing in all of them in one month, as for the most part, the different capitalizations travel in the same direction. Of course, you have to look at how bad the market is and how long you think it is going to stay the way it is. Maybe for now you can just do one fund a month, until you feel as though the market is going to be stronger, at which point you can invest in all of them each month. That strategy will leave you some flexibility and will allow you to capture the dollar-cost-averaging you’re after. Just make sure to keep your equity and fixed-income in proportion over time. Don’t get too worked up over the short-term volatility, the longer-term trend has always been up. Just some thoughts, I hope they helped some.
Best of luck!
Brendan Prewitt
I think you’re overanalyzing. Do you have to pay brokerage costs to purchase the funds? Then just move the money over whichever way is the cheapest.