Don’t make your whole IRA contribution in April. Or January, for that matter

Last Updated on November 30, 2016 by Dave Farquhar

Lifehacker says it costs you money to make your IRA contribution all in April. Unfortunately, their advice to contribute in January is an oversimplification. Don’t make your whole IRA contribution in April, but don’t do it in any other single month either.

Contributing all year gives a better result.

Remember, the market has ups and downs. If you buy on a down day and cash out decades later, you make more money than if you bought on an up day. If you have the contribution withdrawn from your paycheck, you increase the chances of buying on a down day. If you get paid monthly, you get 12 chances. If you get paid twice a month, you get 24, and if you get paid biweekly, you get 26. If you get paid weekly, lucky you, you get 52.

The odds are against you buying on an up day every payday, even if you only have 12 of them a year.

Here’s the other problem with the one-lump-sum strategy. Lots of new money coming into the market in April (due to procrastination) or January (due to efforts to get the money in as early as possible) won’t guarantee the market will be up at those times, but it weighs the odds in that direction. The main driver in the market is supply and demand, and when lots of new money is coming in, that’s when demand is highest.

So you’ll do better in the long run if you take your chances with the rest of the year. Economists can’t agree whether the market is rational or irrational, but the one thing they can agree on is that nobody can predict it with 100% certainty. Accepting that and dot trying to predict it is the best way to avoid being burned.

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