Monday, January 14, 2019

Roth IRA - Dollar Cost Averaging

I spend a lot of time talking about my Robinhood Portfolio, but I don't spend as much time talking about my Roth IRA. A Roth IRA is an Individual Retirement Account (IRA) where you put money in that's already taxed, and the gains you make in the account won't be taxed. There's a few more details to it, but you can google search "Roth IRA" and learn more. 

I'm regularly contributing to my Roth IRA again, and it feels good. I couldn't for awhile due to my job/work situation, but I have money taken out of my account every week into my Roth IRA. I can't quite max out my Roth IRA (putting in $5,500 per year), but I know I'm doing good by putting in what I can. 

I'm buying the same mutual fund in my Roth IRA, and since I'm buying it on a reoccurring basis, I'm buying the mutual fund at different prices, and this is called "Dollar Cost Averaging". Here's an example - 

  • Week 1 - $100 into Roth --> buy mutual fund at $20.00/share = 5.00 shares purchased
  • Week 2 - $100 into Roth --> buy mutual fund at $19.85/share = 5.04 shares purchased
  • Week 3 - $100 into Roth --> buy mutual fund at $19.18/share = 5.21 shares purchased
  • Week 4 - $100 into Roth --> buy mutual fund at $20.18/share = 4.96 shares purchased

The gut reaction when we see the stock price go down is to get anxious or concerned. When the stock price goes down, and you're using the same amount of money to buy shares, you'll buy more shares. This down market since October has been good because I'm buying more shares of the mutual fund in my Roth IRA. The market will go back up eventually, and my Roth IRA portfolio will go back up. 

Thanks for reading,

Signed,

Mitch


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