Investing in Mutual Funds Stock

[Kroze]

which one is better? should i put down all $8k into a mutual fund or should i do an automatic investment plan that takes a certain amount away a month to take advantage of the dollar cost averaging?

which one is better in the long run?

 

[DaveSimmons]

Odds favor dollar cost averaging by a little bit but for some accounts you'll get charged a fee if you don't start out with $5,000.

For dollar cost averaging make sure you aren't being charged a trading / transaction fee with each new purchase. Then a lump purchase is probably better.

For example, Vanguard.com's VFINX (one of the best funds to buy) has no trading fee if your brokerage account is with vanguard.com itself. At other brokerages like Schwab you do pay a fee to buy more shares.

 

[FP]

I have a Vanguard account that automatically deducts from my checking account. No fees and great service.

Vanguard won't charge a transaction fee if you use their auto purchase service however they do charge an annual fee if your balance is less than $10g's in all Vanguard accounts I believe.

 

[Vegito]

i have vanguard.. got around 60k in there.. i have the automatic investment plan setup.. but at every week.. i notice a lot of times i end up buying it at month end at high prices.. so if you have 4 buying points, you get 4 prices... and hopefully they're not always at the high

im on the VTTHX & VTIVX.. retirement funds.. 🙂

 

[kranky]

In your situation, you can't assume there's an advantage to dollar cost averaging. If prices rise, you obviously would have been better off investing it all at the start. I just discussed that very situation with a finance guy last week and he said there's no clear "right" answer based on studies they have done.

If it was me, I'd put it in VFINX all at once.

However, dollar-cost averaging is definitely a winner for the long term.

 

[Vegito]

Originally posted by: kranky

If it was me, I'd put it in VFINX all at once.

However, dollar-cost averaging is definitely a winner for the long term.

too bad i dont do enough research.. going to start a vfinx fund after xmas shopping..

any other vanguard funds that are good ?

 

[jamesave]

go to diehards.org

 

[kranky]

Originally posted by: Vegito

Originally posted by: kranky

If it was me, I'd put it in VFINX all at once.

However, dollar-cost averaging is definitely a winner for the long term.

too bad i dont do enough research.. going to start a vfinx fund after xmas shopping..

any other vanguard funds that are good ?

The way I'd answer that is to dodge it, and say "asset allocation". It's important to split your investments across different types of funds because it reduces your risk. For example, for someone in their 20's who is just starting out, I'd go with VFINX and make monthly investments. When I got to the point where I could split my money up across multiple funds while meeting the minimum investment per fund, I'd start diversifying.

Just to illustrate the point, one approach could be 65% VFINX, 15% VGTSX (International index fund), 10% VBMFX (Bond index fund) and 10% VEXPX (small-cap). These ratios would have to change over time, based on your investment goals and risk tolerance, and would need to be rebalanced every year.

The cool thing about asset allocation is that it is like dollar-cost averaging. Once one area goes way up, you sell a bit and reinvest it in an area that's doing badly. That way you're tending to sell high and buy low.

Asset allocation is critical to a long-term plan. People who bet everything on one fund are exposing themselves to higher risk for no good reason.