If I'm cash-flow negative, should I dollar-cost-average the money from my bonus over the entire year?
"Essentially, your question is ""lump sum vs DCA"" and your tags reflect that. In the long run, lump sum, say a Jan 2 deposit each year, will beat DCA by about 1/2 the average annual market return. $12,000 will see a 10% return, vs, $1,000/month over the year seeing 6%. What hurts is when the market tanks in the first half of the year and you think DCA would have helped. This is a 'feeling' issue, not a math problem.  But. By the time you have $100K invested, the difference of DCA vs lump sum with new money fades, as new deposits are small compared to the funds invested.  By then, you need to know your target allocation and deposit to keep that allocation with new money." You will maximize your expected wealth by investing all the money you intend to invest, as soon as you have it available. Don't let the mythos of dollar cost averaging induce you to allocate more much money to a savings account than is optimal.  If you want the positive expected return of the market, don't put your money in a savings account.  That's especially true now, when you are certainly earning a negative real interest rate on your savings account. Dollar cost averaging and putting all your money in at the beginning would have the same expected return except that if you put all your money in earlier, it spends more time in the market, so your expected return is higher.  Your volatility is also higher (because your savings account would have very low volatility) but your preference for investment tells me that you view the expected return and volatility tradeoff of the stock market as acceptable. If you need something to help you feel less stress about investing right away, think of it as dollar cost averaging on a yearly basis instead of monthly.  Further, you take take comfort in knowing that you have allocated your wealth as you can instead of letting it fizzle away in real terms in a bank account.
Yes, I have done this and did not feel a change in cash flow - but I didn't do it a the age of 23.  I did it at a time when it was comfortable to do so.  I should have done it sooner and I strongly encourage you to do so.   Another consideration:  Is your companies program a good one?  if it is not among the best at providing good funds with low fees then you should consider only putting 6% into your employer account to get the match.  Above that dollar amount start your own ROTH IRA at the brokerage of your choice and invest the rest there.  The fee difference can be considerable amounting to theoretically much higher returns over a long time period. If you choose to do the max , You would not want to max out before the end of the year.  Calculate your deferral very carefully to make sure you at least put in 6% deferral on every paycheck to the end of the year.  Otherwise you may miss out on your company match.  It is wise to consider a ROTH but it is extremely tough to know if it will be good for you or not.  It all depends on what kind of taxes (payroll, VAT, etc) you pay now and what you will pay in the future.  On the other hand the potential for tax-free capital accumulation is very nice so it seems you should trend toward Roth. This is the same as any case where income is variable.  How do you deal with the months where expected cash flows are lower than projected? When I got married, my wife was in the habit of allocating money to be spent in the current month from income accrued during the previous month.  This is slightly complicated because we account for taxes (and benefit expenses) withheld in the current months' paychecks as current expenses, but we allocate the gross income from that check to the following month for spending. The benefit of spending only money made during the previous month is that income shocks are less shocking.  I was working for a start-up and they missed payroll that normally arrived on the first of the month.  Most of my co-workers were calling the bank in a panic to avoid over-draft fees with their mortgage payments, but my mortgage payment was already covered.  Similarly, when the same start-up had a reduction in force on the first day of a new quarter, I didn't have to pull any money from savings during the 3 weeks I was unemployed. In the end, you're going to have to allocate money to the budget based on the actual income--which is lower than your expectations.  What part of the budget should fairly be reduced is a question you and your wife will have to figure out. I think I understand what I am doing wrong.  To provide some clarity, I am trying to determine what the value of a project is to a firm.  To do this I am taking FCF, not including interest or principal payments, and discounting back to get an NPV enterprise value.  I then back off net debt to get to equity value.  I believe what I am doing wrong is that I show that initial $50M as a cash outflow in period 0 and then back it off again when I go from enterprise value to equity value.  Does this make any sense?  Thanks for your help. Brownbag your lunch and make coffee at home.   If your current lifestyle includes daily takeout lunches and/or barista-made drinks, a rough estimate is you have a negative cash flow of $8-20 per day, $40-100 per week, $2080-5200 per year.   If you have daily smoothies, buy a blender.  If you have daily lattes buy an espresso maker.  I recently got myself a sodastream and it's been worth it.   Until you have a six figure portfolio, you aren't going to swing a comparable annual return differential based on asset allocation. Balance sheet engineering.  You might be right, but it might not be a cost of money issue.  It could be a million other things.  You might be trying to line up some future ROI metrics because you know something positive or negative about WFM's near term projections.  There's many reasons to go one way or another, and future effects on investor sentiment, the balance sheet,  various metrics that AMZN has deemed important in past comments/filings, etc.... A lot goes into these decisions. Does it make sense to calculate the IRR based on the outstanding value of the project, or just use the cash flows paid out? Let's assume I invest x amount every year for 49 years, and the investment grows at a constant rate, but I do not get dividends before (which will be constant) 50 years later. I assume that the value of the investment will decline as it pays dividend, and will be worth 0 when the dividends stop.   Do I calculate the IRR as the negative streams of outflows for the first 49 years and then positive cash inflows from 50 year in the future? If I apply this method, the IRR will be very low, almost equal to the annual expected return.  Or based on the current value of the project for each year combined with cash outflows for the first 49 years and dividends from year 50? If I apply this method, the IRR will be a lot higher than the first method. That depends whether you're betting on the market going up, or down, during the year. If you don't like to bet (and I don't), you can take advantage of dollar cost averaging by splitting it up into smaller contributions throughout the year. If you define dollar cost cost averaging as investing a specific dollar amount over a certain fixed time frame then it does not work statistically better than any other strategy for getting that money in the market.  (IE Aunt Ruth wants to invest $60,000 in the stock market and does it $5000 a month for a year.) It will work better on some markets and worse on others, but on average it won't be any better. Dollar cost averaging of this form is effectively a bet that gains will occur at the end of the time period rather than the beginning, sometimes this bet will pay off, other times it won't. A regular investment contribution of what you can afford over an indefinite time period (IE 401k contribution) is NOT Dollar Cost Averaging but it is an effective investment strategy. "So, if I understand the investment program here: You have $100 of tax withheld from your salary at the end of Jan, Feb, Mar... until December.  This withholding is in excess of the expected tax for the year. You use the appropriate H&R Block product to file your taxes, and H&R Block gets your refund of $1200 on March 1st.  H&R Block adds 10& and give you e-cards for $1320 On the face of it, this represents a return of 15.19% per year, compounded monthly. However, there are a few wrinkles that might make the scheme less inviting: You'll get a receipt for miscellaneous income from H&R Block, and pay tax on the ""earnings"". The quoted return is only realized if you can use the e-cards immediately.  If they sit around for a while, then they aren't earning any interest.  If you sell them for cash at a discount (if you even can!)  then this reduces the return.  If you don't cash them at all, they're a total loss. This offer was announced on Jan 15, 2015.  So you can't go back and put it in place for 2014.  And if you set it up for withholding in 2015, is there any guarantee that it the same offer will be in place when filing in 2016?" &gt; 1)What is the formula to turn the annualized rate into a monthly rate?  What do you *think* it is?   &gt; 2)What is the formula to find out the NPV of monthly cash flows?  Same one as usual. Remember, value can only be summed if it's *at the same point in time.*   &gt; For example, if I get $1000, $2000, and $3000 in months 1, 2, and 3, how do I calculate how much each of those are equal to as a present value if the annual discount rate is 8%?  Think it through. "The best way to do this is to use IRR.  It's a complicated calculation, but will take into account multiple in/out cash flows over time along with ""idle periods"" where your money may not have been doing anything.  Excel can calculate it for you using the XIRR function" The optimal time period is unambiguously zero seconds.  Put it all in immediately.  Dollar cost averaging reduces the risk that you will be buying at a bad time (no one knows whether now is a bad or great time), but brings with it reduction in expected return because you will be keeping a lot of money in cash for a long time.  You are reducing your risk and your expected return by dollar cost averaging. It's not crazy to trade expected returns for lower risk.  People do it all the time.  However, if you have a pot of money you intend to invest and you do so over a period of time, then you are changing your risk profile over time in a way that doesn't correspond to changes in your risk preferences.  This is contrary to finance theory and is not optimal.  The optimal percentage of your wealth invested in risky assets is proportional to your tolerance for risk and should not change over time unless that tolerance changes. Dollar cost averaging makes sense if you are setting aside some of your income each month to invest.  In that case it is simply a way of being invested for as long as possible.  Having a pile of money sitting around while you invest it little by little over time is a misuse of dollar-cost averaging. Bottom line: forcing dollar cost averaging on a pile of money you intend to invest is not based in sound finance theory.  If you want to invest all that money, do so now.  If you are too risk averse to put it all in, then decide how much you will invest, invest that much now, and keep the rest in a savings account indefinitely.  Don't change your investment allocation proportion unless your risk aversion changes. There are many people on the internet and elsewhere who preach the gospel of dollar cost averaging, but their belief in it is not based on sound principles.  It's just a dogma. The language of your question implies that you may be interested in sound principles, so I have given you the real answer. "I am interested in seeing what happens to your report after you test this, but I don't think it's possible in practice, would not affect your credit score, and also wouldn't be worth it for you to carry a negative balance like that. Having a -1% credit utilization essentially means that you are lending the credit card company money, which isn't really something that the credit card companies ""do"". They would likely not accept an agreement where you are providing the credit to them. Having credit is a more formal agreement than just 'I paid you too much this month'. Even if your payment does post before the transaction and it says you have a negative balance and gets reported to the credit bureau like that, this would probably get flagged for human review, and a negative credit utilization doesn't really reflect what is happening. Credit utilization is 'how much do you owe / amount of credit available to you', and it's not really correct to say that you owe negative dollars. Carrying a negative balance like that is money that could be invested elsewhere. My guess is that the credit card company is not paying you the APR of your card on the amount they owe you (if they are please provide the name of your card!). They probably don't pay you anything for that negative balance and it's money that's better used elsewhere. Even if it does benefit your credit score you're losing out on any interest (each month!) you could have earned with that money to get maybe 1-2% better rate on your next home or car loan (when will that be?).  TLDR: I think credit utilization approaches a limit at 0% because it's based on the amount you owe and you don't really owe negative dollars. I am very interested in seeing the results of this experiment, please update us when you find out!" "It can be pretty hard to compute the right number. What you need to know for your actual return is called the dollar-weighted return. This is the Internal Rate of Return (IRR) http://en.wikipedia.org/wiki/Internal_rate_of_return computed for your actual cash flows. So if you add $100 per month or whatever, that has to be factored in. If you have a separate account then hopefully your investment manager is computing this. If you just have mutual funds at a brokerage or fund company, computing it may be a bunch of manual labor, unless the brokerage does it for you. A site like Morningstar will show a couple of return numbers on say an S&P500 index fund. The first is ""time weighted"" and is just the raw return if you invested all money at time A and took it all out at time B. They also show ""investor return"" which is the average dollar-weighted return for everyone who invested in the fund; so if people sold the fund during a market crash, that would lower the investor return. This investor return shows actual returns for the average person, which makes it more relevant in one way (these were returns people actually received) but less relevant in another (the return is often lower because people are on average doing dumb stuff, such as selling at market bottoms). You could compare yourself to the time-weighted return to see how you did vs. if you'd bought and held with a big lump sum. And you can compare yourself to the investor return to see how you did vs. actual irrational people. .02, it isn't clear that either comparison matters so much; after all, the idea is to make adequate returns to meet your goals with minimum risk of not meeting your goals. You can't spend ""beating the market"" (or ""matching the market"" or anything else benchmarked to the market) in retirement, you can only spend cash. So beating a terrible market return won't make you feel better, and beating a great market return isn't necessary. I think it's bad that many investment books and advisors frame things in terms of a market benchmark. (Market benchmarks have their uses, such as exposing index-hugging active managers that aren't earning their fees, but to me it's easy to get mixed up and think the market benchmark is ""the point"" - I feel ""the point"" is to achieve your financial goals.)" It sounds like they are matching your IRA contribution dollar for dollar up to 1% of your salary. Think of that as an instant 100% yield on your investment. (Your money instantly doubles.) My 401(k) has been doing pretty well over the last year, but it will take several years before my money doubles.  So you can let it sit in cash for a year, then take some pretty hefty fees and you will probably still come out ahead. (Of course it's hard to say without knowing all of the fees.)