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of the year can be very lucrative.<h2 id="b3b7">Invest All Your Money As Soon as Possible</h2>One night I started thinking about 2022 and how much money I could put in my <a href="https://readmedium.com/utilize-your-401k-and-roth-ira-together-cf45cc1ced75">Roth IRA</a> in January. My normal strategy is to dollar cost average. But the more I thought about it, the more it started to make sense to do otherwise.What would happen if I invested all my money for 2022 into the S&P 500 on day one? Since Roth IRAs have max contribution limits, I already know the max I can invest in it for 2022. So I played around in excel with historical data to find out.Starting in 1980 and including 2021, I looked at how many individuals years were profitable. For example, in 2012 the market began the year at $1,277 and ended the year at$ 1,462. That year would have been a profitable one.The results: 33 of the 42 years the S&P 500 ended the year higher than it started. That comes out to just under 79% of the time, if you invest the first trading day of the year (usually Jan. 2nd), you will be profitable come Dec. 31st.I’ll take those odds. Especially because markets generally go up over time.So then I took it one step further, to look at the 9 instances where the S&P 500 ended the year lower than it had started it.There were four times when the S&P 500 ended lower after two years. For example, 2008 opened at $1,447 and 2009 closed at$ 1,133. All four instances were during the crashes of the dot-com bubble and the great recession.Going back to the change over one year, in addition to 3 out of 4 years being positive, the median return is 12.3%. That’s notably higher than the <a href="https://readmedium.com/why-you-should-expect-more-than-8-a-year-f

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rom-stocks-d317fa6cc92c">10.6% average (mean) return</a>.When looking at only the positive years, the average return is 16.8% and for only the negative years, the return is -12.0%.Moral of the story, putting money into the market at the beginning of the year is usually beneficial.Time in the market beats timing the market<h2 id="dd82">Why I Will Still DCA</h2>There are still times when I will dollar cost average. Lump sum investing is best for the general market, as that has shown it goes up over time. But individual stocks are much more volatile.For individual stocks, I still prefer to dollar cost average my investment; whether that's means buying in weekly or monthly.Dollar cost averaging has many benefits, which mainly help with individual stocks. One of the great parts of dollar cost averaging is that it takes the <a href="https://readmedium.com/the-psychology-behind-certain-stock-market-decisions-31f937873c6a">emotions of out investing</a>.If my strategy is to buy one share of stock X every Wednesday, that is what I am going to do. I’m not concerned if the stock price dropped or rose 10% in the past week. I simply keep buying until I reach my desired quantity.Besides removing emotions, it also helps ensure you won’t buy all in at an overvalued price. You also won’t be lucky enough to buy in at a very undervalued price. But if you're investing for the long run, neither of these should matter if the company is a solid one.Both dollar cost averaging and lump sum investing have their benefits and places to be utilized. No matter the strategy, the message is the same, <a href="https://readmedium.com/the-value-of-time-in-the-stock-market-8f758e35a633">investing for the long run will yield great results</a>.</article></body>

You Should Throw All Your Money Into the Market January 1st

Lump sum investing proves better than dollar cost averaging

Dollar-cost averaging is one of my favorite strategies. It's my tried and true way to invest. But today I’m going to show you why it's not the best approach.

Investing as a lump sum, as early as possible, is the best way to make money. It seems obvious — the earlier you invest your money the better it will do, but the numbers will help paint a better picture.

Dollar Cost Averaging vs Lump Sum

Before the analysis, a quick summary of the two.

Dollar cost averaging is an investment strategy in which you slowly buy into a position. It can be over days, months, or years where you put X amount in every time you buy.

The benefit of dollar cost averaging is that you don’t worry about timing so you won’t get caught buying high or buying low — it should even out to the middle.

Lump sum investing is the opposite. Instead of buying into an investment over time, you buy into your position all at once. So if you wanted to have 10 shares of stock X, you would buy all the shares at once, compared to dollar cost averaging where you might buy one share each week for ten weeks.

Lump sum investing might sound crazy to some, especially with markets near all time highs right now.

But investing via lump sum at the beginning of the year can be very lucrative.

Invest All Your Money As Soon as Possible

One night I started thinking about 2022 and how much money I could put in my Roth IRA in January. My normal strategy is to dollar cost average. But the more I thought about it, the more it started to make sense to do otherwise.

What would happen if I invested all my money for 2022 into the S&P 500 on day one? Since Roth IRAs have max contribution limits, I already know the max I can invest in it for 2022. So I played around in excel with historical data to find out.

Starting in 1980 and including 2021, I looked at how many individuals years were profitable. For example, in 2012 the market began the year at $1,277 and ended the year at $1,462. That year would have been a profitable one.

The results: 33 of the 42 years the S&P 500 ended the year higher than it started. That comes out to just under 79% of the time, if you invest the first trading day of the year (usually Jan. 2nd), you will be profitable come Dec. 31st.

I’ll take those odds. Especially because markets generally go up over time.

So then I took it one step further, to look at the 9 instances where the S&P 500 ended the year lower than it had started it.

There were four times when the S&P 500 ended lower after two years. For example, 2008 opened at $1,447 and 2009 closed at $1,133. All four instances were during the crashes of the dot-com bubble and the great recession.

Going back to the change over one year, in addition to 3 out of 4 years being positive, the median return is 12.3%. That’s notably higher than the 10.6% average (mean) return.

When looking at only the positive years, the average return is 16.8% and for only the negative years, the return is -12.0%.

Moral of the story, putting money into the market at the beginning of the year is usually beneficial.

Time in the market beats timing the market

Why I Will Still DCA

There are still times when I will dollar cost average. Lump sum investing is best for the general market, as that has shown it goes up over time. But individual stocks are much more volatile.

For individual stocks, I still prefer to dollar cost average my investment; whether that's means buying in weekly or monthly.

Dollar cost averaging has many benefits, which mainly help with individual stocks. One of the great parts of dollar cost averaging is that it takes the emotions of out investing.

If my strategy is to buy one share of stock X every Wednesday, that is what I am going to do. I’m not concerned if the stock price dropped or rose 10% in the past week. I simply keep buying until I reach my desired quantity.

Besides removing emotions, it also helps ensure you won’t buy all in at an overvalued price. You also won’t be lucky enough to buy in at a very undervalued price. But if you're investing for the long run, neither of these should matter if the company is a solid one.

Both dollar cost averaging and lump sum investing have their benefits and places to be utilized. No matter the strategy, the message is the same, investing for the long run will yield great results.