Invest periodically or all at once?
Thursday, November 4th, 2004
Categorized as: Yesterday's News (old post archive)
I’m interested in putting away $20,000 for 20 to 30 years. Does it make any difference whether I put it all away at once or whether I invest say a thousand dollars a month over a 20-month period? Will my timing affect the amount I earn in the end?
You have an interesting question. If we were talking about stocks, mutual funds, or fixed-rate investments like traditional bonds or bank certificates of deposit, I would encourage you to invest a little bit at a time on a scheduled basis.
This is a low-risk strategy that causes you to obtain the average cost over the period you make the investment. You do lose the chance to accidentally buy in at a cost advantage, but, more importantly, you escape the risk of buying in at a cost disadvantage.
However, Savings Bonds are different. The interest rate you receive on Savings Bonds is adjusted every six months. So you’re not locking yourself into a specific rate or – in stock market terms – a specific price.
Because Savings Bonds rates adjust, your returns get averaged out whether you invest all at once or on a scheduled basis. So the answer to your question is that with Savings Bonds, it doesn’t make any difference.