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?

Tom’s response

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.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

2 Comments

On February 1st, 2006 Dan said:

Tom,

All good points for the above questioner who plans to leave the I-Bonds untouched for 20-30 years.

However, if one is planning to count I-Bonds toward their “Emergency Fund”, then the one-year redemption rule clearly makes it advantageous to move gradually to I-Bonds from a more liquid source.

I’m taking a little bit at the end of each month from my online savings account into Treasury Direct. I don’t plan to redeem until it matures, but if I have to I’ll know I have access to most of it. So far, it’s proven a much better option for that universally suggested 3-6 months of living expenses than savings accounts, short-term CD’s, or T-bills!

On February 1st, 2006 Tom Adams said:

Dan – thanks for making that point. The one-year redemption rule is an angle I didn’t think of when I answered this question.

In addition, since I wrote the answer the way EE bonds work has changed and the rates on new ones don’t adjust.

And with I bonds, the fixed base-rate doesn’t adjust.

All of these are reasons to invest periodically rather than all at once.

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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