Drama In Real Life: Inadvertent Market Timing

For the last couple of years, I have made my IRA contributions in a lump sum rather than dollar-cost averaging them over the course of a year. When I first started working, I was making a high enough salary that I wouldn't know until December, when my firm distributes year-end bonuses, whether my Adjusted Gross Income (AGI) was too high to be able to contribute to a Roth IRA. Last year, my AGI ended up being too high for a Roth so I opened a traditional IRA, with an eye to converting it to a Roth in 2010.

I started off 2008 knowing my income would once again be too high to contibute to a Roth, but I held off on contributing for two reasons.

The first reason was habit: ever since I opened my Roth when I was in high school, I've contributed in a lump sum at the end of the year. Every year when I walked through my income taxes with my Dad, he'd ask me how much I had to contribute to my Roth, and he'd top it off. I think it was just less of a logisitcal headache for him that way and made the look-back accounting easier, and it never occurred to me to contribute over the course of the year.

But the second reason I held off was that my IRAs, both the Roth and the traditional, are with Vanguard, which has somewhat hefty minimum initial investments. Last year I put my total $4,000 contribution into the Vanguard 500 Index (VFINX--I love calling it that, it sounds so minxy), Vanguard's S&P 500 Index. That fund has a minimum initial investment of $3,000, as did several of the other funds I was looking at. I planned to put my 2008 contribution into another fund, probably Vanguard's Total Stock Market Fund, and depending on how much money I had in VFINX, potentially spread that money a little thinner into three funds, with the third being an overseas market fund.

That won't happen now, since VFINX has lost so much money this year. As of yesterday, my initial $4,000 investment has become $2,755. But c'est la vie. I'm in my twenties, baby.

So I waited until I had at least $3,000 set aside to make a 2008 contribution. That happened with my September paycheck, since I didn't set any money aside in the early part of the year until I could build up the emergency fund again after my emergency furnace purchase. As of October 1, I had $3,160 set aside for an IRA contribution. I'll continue setting money aside, and I plan to contribute the whole $5,000 I'm eligible for.

But it just so happened that acheiving my $3,000 benchmark roughly coincided with the stockmarket going up in flames. It is, so I hear, a great time to buy.

So of course, I didn't buy. I sat on it for about a week, dithering about whether I should go ahead and throw down or sit on my liquidity. Just in case. And I could do a single lump contribution at the last minute. But it's such a good time to buy! But I like my big fat savings account balance! But it's such a good time to buy! You know: My mother! My sister! My mother! My sister!

Anyway, I pulled the trigger today. $3,160 is now floating somewhere on the internet between HSBC and Vanguard. We'll see how my reluctant run at market timing shakes out. I am left with a soggy feeling that no matter which route I chose I would have ended up feeling stupid and regretful about it later on. Better or stupid, regretful, and bold. (Yes, I tolerate risk somwhat well, why do you ask?)