It’s a new year. The IRA contribution limit has gone up by $500 to $5,500 ($6,500 if you are 50 or older). Have you made your IRA contribution for 2013 yet?
I haven’t. I’m going to continue with my experiment with buying on a dip. Last year I bought Vanguard Total International Stock Index Fund Admiral Shares on January 6 at $21.93 per share. That was 2% lower than the price I would’ve got if I blindly bought at the first opportunity.
Dollar cost averaging into this fund last year would’ve worked even worse than dropping a lump sum on January 2.
Buying on dip with discipline beat both lump sum and dollar cost averaging. Had I waited until June I could’ve got the price another 5% lower but who knew? I’m not timing the market to hit the lowest point. Just a slightly lower price than the first price I see will do.
My destination for the 2013 IRA contribution is still the Vanguard Total International Stock Index Fund because my 401k plan has good options for US stocks but not as good for international. Let the records show if I bought at the first opportunity on January 2, I would’ve paid $25.53 per share. I will buy when the price goes 2% lower. That would be $25.02 per share.
It’s impossible to predict the net asset value at close for an open-end mutual fund. So I’m going to use the ETF equivalent ticker VXUS as a proxy. I set an alert for VXUS. If it goes below 2% below the closing price on Jan. 2 I will buy the mutual fund.
What do you think my odds of success are? Will the price of an international stocks mutual fund at any point during the year go 2% below its price on January 2?
I think the odds are good. Prices fluctuate. In the grand scheme of things, 2% on $5,500 doesn’t matter. If it goes my way, I save $110. If it doesn’t, it means my existing holdings are going up and up. Either way it will be a good outcome.
This is just me. I’m not recommending that you should do the same.
[Photo credit: Flickr user keltickelton]
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