Continue to put aside savings into index funds?

Submitted by _trouser_chowder_ t3_10q4vlk in personalfinance

A little over a year ago, I dropped about $27k of savings into index funds, just trying to get some money into investments rather than just having it sit in savings.

Of course, in the last year that's dropped by about 20% or so. I've continued to add small amounts at a stretch (basically small automatic transfers when I get paid), but am hesitant to put significantly more in right now.

Am I being stupid by not putting a significant amount more from savings in now while the market is at a lower point?

(Note: I am also keeping up my 401k contributions fully, just wondering about liquidity versus index funds for the relative short term.)

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1hotjava t1_j6nugqx wrote

Investing is the long game. Put it in and leave it alone. Keep adding to it. Ignore the current market as that is irrelevant in terms of multi decade investing. That’s how you build wealth.

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_trouser_chowder_ OP t1_j6nuwz0 wrote

True. And I agree in principle. Just hard to look at accessible cash and not cringe a little when the market dips.

I'm fairly new to having enough left over at the end of the month to put a decent amount into savings, and it's hard not to focus on that savings account number growing larger.

Even though I know that, especially right now, it's not even keeping up with inflation. It's definitely a mental block.

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sol_in_vic_tus t1_j6nx9fy wrote

The next "greatest bull market ever" will probably happen a couple of times in your lifetime. You want to be as invested as possible before that happens and nobody can predict when it will.

If you need that money for other priorities that's one thing. Go spend it on that instead. If this is money for retirement then it isn't doing the job you assigned it while it is parked in cash.

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juggett t1_j6nttn4 wrote

Always smart to have a 3-6 month emergency fund. If you’re concerned about the market tanking after you make a large deposit, take your budgeted amount and divide by 6 or 12 and just DCA into the market over the next few months.

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absurdamerica t1_j6nv7ku wrote

Settle on an amount you can comfortably do and do it no matter what the market does. Always be investing!

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dmaxd123 t1_j6nvvrd wrote

if you have a specific goal/need for the money, high yield savings account, if it is money that isn't emergency fund, isn't to save for a short term purchase, then index funds will do you well.

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TyrconnellFL t1_j6nxen3 wrote

The only reason to invest is if you think the market will, eventually, go up. That’s been the trend, so that’s the thinking.

No one is any good at figuring out when it will go up or down in the short term. If this is the low point, of course you should buy! If it’s going to drop further, you should wait! But nobody knows.

Because the market on average tends to go up; at any given time investing now on average means you’ll capture more of that growth, and waiting means on average you’ll miss out out growth. Not always, like you saw over the last year, but usually.

The biggest mistake with a lot of investing is being too nervous. Missing the gains and only investing afterwards is also a way to at least lose in opportunity cost.

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getcrunkwithmilk t1_j6nvi27 wrote

I avoid putting in lump sums when possible and instead dollar cost average on a weekly or monthly basis.

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TyrconnellFL t1_j6nwv7z wrote

That’s fair, but it’s not the smartest.

If the market on average goes up, or goes up on average at any given time. DCA means on average missing out on some growth. The optimal thing is to invest as much as you can afford as soon as you have the money. If you have a big lump, invest it now.

It’s not a huge difference and DCA can feel safer, but in plain math it loses out.

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FabulousHalf98 t1_j6ogokn wrote

That’s something I always wondered. If the long term plan is to benefit from the the slow but gradual growth, due to time invested, wouldn’t the best option be to get in as early as possible with a lump sum?

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TyrconnellFL t1_j6oh8r7 wrote

Yes, but most of the time we don’t have lump sums. We earn X dollars, and we can afford to invest Y of that. So every two weeks or month, we should invest Y.

It still looks like a steady trickle, but DCA is doing that on purpose, and “continuous lump sum” is because there’s only so much money at any time, but it gets invested immediately.

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Various-Training-603 t1_j6ov353 wrote

I opened up a Roth IRA and put in a lump sum in dec 2021 (terrible timing, I know), and now I wished I would have done DCA to minimize risk.

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TyrconnellFL t1_j6p251j wrote

Yes, that sometimes happens. This is about averages. On average, if every year you DCA, there are more years that you’ll feel like you missed out than years that you’ll kick yourself.

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