Over how much time should I dollar-cost-average my bonus from cash into mutual funds?
The OP invests a large amount of money each year (30-40k), and has significant amount already invested. Some in the United States that face this situation may want to look at using the bonus to fund two years worth of IRA or Roth IRA.  During the period between January 1st and tax day they can put money into a IRA or Roth IRA for the previous year, and for the current year. The two deposits might have to be made separately, because the tax year for each deposit must be specified. If the individual is married, they can also fund their spouses IRA or Roth IRA.  If this bonus is this large every year, the double deposit can only be done the first time, but if the windfall was unexpected getting the previous years deposit done before tax day could be useful.  The deposits for the current year could still be spread out over the next 12 months. EDIT: Having thought about the issue a little more I have realized there are other timing issues that need to be considered. There have been studies which show that Dollar Cost Averaging (DCA) underperforms Lump Sum Investing (LSI). Vanguard, in particular, has published one such study. Of course, reading about advice in a study is one thing; acting on that advice can be something else entirely. We rolled over my wife's 401(k) to an IRA back in early 2007 and just did it as a lump sum. You know what happened after that. But our horizon was 25+ years at that time, so we didn't lose too much sleep over it (we haven't sold or gone to cash, either). I'm staring at this chart and asking myself, How long a period is enough to have an average I'd be happy with regardless of the direction the market goes?  3 years? 4 years? Clearly, a lump sum investment risks a 2000 buy at 1500. Not good. Honestly, I love the question, and find it interesting, but there's likely no exact answer, just some back and forth analysis. You're investing about $40K/yr anyway. I'd suggest a 4 year timeframe is a good time to invest the new money as well. Other folk want to offer opinions? Edit - with the OP's additional info, he expects these bonuses to continue, my updated advice is to DCA quarterly if going into assets with a transaction fee or monthly if into a no-fee fund, over just a one year period. Canadian Couch Potato has an article which is somewhat related. Ask the Spud: Can You Time the Markets? The argument roughly boils down to the following: That said, I didn't follow the advice. I inherited a sum of money, more than I had dealt with before, and I did not feel I was emotionally capable of immediately dumping it into my portfolio (Canadian stocks, US stocks, world stocks, Canadian bonds, all passive indexed mutual funds), and so I decided to add the money into my portfolio over the course of a year, twice a month. The money that I had not yet invested, I put into a money market account. That worked for me because I was purchasing mutual funds with no transaction costs. If you are buying ETFs, this strategy makes less sense. In hindsight, this was not financially prudent; I'd have been financially better off to buy all the mutual funds right at the beginning. But I was satisfied with the tradeoff, knowing that I did not have hindsight and I would have been emotionally hurt had the stock market crashed. There must be research that would prove, based on past performance, the statistically optimal time frame for dollar-cost averaging. However, I strongly suppose that the time frame is rather small, and so I would advise that you either invest the money immediately, or dollar-cost average your investment over the course of the year. This answer is not an ideal answer to your question because it is lacking such a citation.
"I have been considering a similar situation for a while now, and the advice i have been given is to use a concept called ""dollar cost averaging"", which basically amounts to investing say 10% a month over 10 months, resulting in your investment getting the average price over that period. So basically, option 3." Expenses matter. At the back end, retirement, the most often quoted withdrawal rate is 4%. How would it feel to be paying 1/4 of each years' income to fees, separate from the taxes due, separate from whether the market is up or down? Kudos to you for learning this lesson so early.  Your plan is great, and while I often say 'don't let the tax tail wag the investing dog' being mindful of the tax hit in any planned transaction is worthwhile.  Selling and moving enough funds to stay at 0% is great, a no-brainer, as they say. Selling more depends on the exact numbers involved. Do a fake return, and see how an extra $1000/$2000 etc, worth of fund sale impacts the taxes. It will depend on how much gain there is for each $XXX of fund. Say you are up 25%, So $1000 has $200 of gain. 15% of $200 is $30. A 1%/yr fee cost you $10/yr, so it's worth waiting till January to sell the next shares of the fund.  Keep in mind, the 'test' return will still have the 2013 rates and brackets, I suggest this only as an estimating tool. 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. In general, lump sum investing will tend to outperform dollar cost averaging because markets tend to increase in value, so investing more money earlier will generally be a better strategy.  The advantage of dollar cost averaging is that it protects you in times when markets are overvalued, or prior to market corrections.   As an extreme example, if you done a lump-sum investment in late 2008 and then suffered through the subsequent market crash, it may have taken you 2-3 years to get back to even.  If you began a dollar cost averaging investment plan in late 2008, it may have only taken you a 6 months to get back to even. Dollar cost averaging can also help to reduce the urge to time the market, which for most investors is definitely a good thing. "Personally, I think you are approaching this from the wrong angle.  You're somewhat correct in assuming that what you're reading is usually some kind of marketing material.  Systematic Investment Plan (SIP) is not a universal piece of jargon in the financial world.  Dollar cost averaging is a pretty universal piece of jargon in the financial world and is a common topic taught in finance classes in the US. On average, verified by many studies, individuals will generate better investment returns when they proactively avoid timing the market or attempting to pick specific winners.  Say you decide to invest in a mutual fund, dollar cost averaging means you invest the same dollar amount in consistent intervals rather than buying a number of shares or buying sporadically when you feel the market is low. As an example I'll compare investing $50 per week on Wednesdays, versus 1 share per week on Wednesdays, or the full $850 on the first Wednesday.   I'll use the Vanguard Large cap fund as an example (VLCAX).  I realize this is not really an apples to apples comparison as the invested amounts are different, I just wanted to show how your rate of return can change depending on how your money goes in to the market even if the difference is subtle.  By investing a common dollar amount rather than a common share amount you ultimately maintain a lower average share price while the share price climbs.  It also keeps your investment easy to budget. Vanguard published an excellent paper discussing dollar cost averaging versus lump sum investing which concluded that you should invest as soon as you have funds, rather than parsing out a lump sum in to smaller periodic investments, which is illustrated in the third column above; and obviously worked out well as the market has been increasing. Ultimately, all of these companies are vying to customers so they all have marketing teams trying to figure out how to make their services sound interesting and unique.  If they all called dollar cost averaging, ""dollar cost averaging"" none of them would appear to be unique.  So they devise neat acronyms but it's all pretty much the same idea.  Trickle your money in to your investments as the money becomes available to you." "How often should one use dollar-cost averaging? Trivially, a dollar cost averaging (DCA) strategy must be  used at least twice! More seriously, DCA is a discipline that people (typically investors with relatively small amounts of money to invest each month or each quarter)  use to avoid succumbing to the temptation to ""time the market"".  As mhoran_psprep points out, it is well-suited to 401k plans and the like (e.g. 403b plans for educational and non-profit institutions, 457 plans for State employees, etc), and indeed is actually  the default option in such plans, since a fixed amount of money gets invested each week, or every  two weeks, or every month depending on the payroll schedule. Many plans offer just a few mutual funds in which to invest, though far too many people, having little knowledge or understanding of  investments, simply opt for the money-market fund or guaranteed annuity fund in their 4xx plans.  In any case, all your money goes to work immediately since all mutual funds let you invest in thousandths of a share. Some 401k/403b/457 plans allow investments in stocks through a brokerage, but I think that using DCA to  buy individual stocks in a retirement plan is not a good  idea at all. The reasons for this are that not only must shares must be bought in whole numbers (integers) but it is generally cheaper to buy stocks in round lots  of 100 (or multiples of 100) shares rather than in odd lots of, say, 37 shares. So buying stocks weekly, or biweekly or monthly in a 401k plan means paying more or having the money sit idle until enough is accumulated to buy 100 shares of a stock at which point the brokerage executes the order to buy the stock; and this is really not DCA at all.  Worse yet, if you let the money accumulate but you are the one calling the shots ""Buy 100 shares of APPL today"" instead of letting the brokerage execute the order when there is enough money, you are likely to  be timing the market instead of doing DCA. So, are brokerages useless in retirement fund accounts?  No, they can be useful but they are not suitable for DCA strategies involving buying stocks. Stick to mutual funds for DCA. Do people use it across the board on all stock investments? As indicated above, using DCA to buy individual stocks is not the best idea, regardless of whether it is done inside a retirement plan or outside. DCA outside a retirement plan works best if you not trust yourself to stick with the strategy (""Ooops, I forgot to mail the check yesterday; oh, well, I will do it next week"") but rather, arrange for your mutual fund company to take the money out of your checking account each week/month/quarter etc, and invest it in whatever fund(s) you have chosen. Most companies have such programs under names such as Automatic Investment Program (AIP) etc. Why not have your bank send the money to the mutual fund company instead? Well, that works too, but my bank charges me for sending the money whereas my mutual fund company does AIP for free. But YMMV. Dollar-cost averaging generally means investing  a fixed amount of money on a periodic basis. An alternative strategy, if one has decided that owning 1200 shares of FlyByKnight Co is a good investment to have, is to buy round lots of 100 shares of FBKCO each month. The amount of money invested each month varies, but at the end of the year, the average cost of the 1200 shares is the average of the prices on the 12 days on which the investments were made. Of course, by the end of the year, you might not think FBKCO is worth holding any more. This technique worked best in the  ""good old days"" when blue-chip stocks  paid what was for all practical purposes a guaranteed dividend each year, and people bought these stocks with the intention of passing them on to their widows and children." Theoretically there is always a time value of money. You'll need to keep your cash in a  Money Market Fund to realize its potential (I'm not saying MMFs are the best investment strategy, they are the best kind of account for liquid cash). Choose an accounts that's flexible with regard to its minimum required so you can always keep this extra money in it and remove it when you need to make a payment. If you are making regular periodic investments (e.g. each pay period into a 401(k) plan) or via automatic investment scheme in a non-tax-deferred portfolio (e.g. every month, $200 goes automatically from your checking account to your broker or mutual fund house), then one way of rebalancing (over a period of time) is to direct your investment differently into the various accounts you have, with more going into the pile that needs bringing up, and less into the pile that is too high. That way, you can avoid capital gains or losses etc in doing the selling-off of assets. You do, of course, take longer to achieve the balance that you seek, but you do get some of the benefits of dollar-cost averaging. There are a number of scholarly articles on the subject including a number at the end of the Vanguard article you reference.  However, unfortunately like much of financial research you can't look at the articles without paying quite a bit. It is not easy to make a generic comparison between lump-sum and dollar cost averaging because there are many ways to do dollar cost averaging.  How long do you average over?  Do you evenly average or exponentially put the money to work?  The easiest way to think about this problem though is does the extra compounding from investing more of the money immediately outweigh the chance that you may have invested all the money when the market is overvalued.  Since the market is usually near the correct value investing in lump sum will usually win out as the Vanguard article suggests. As a side note, while using DCA on a large one time sum of money is generally not optimal, if you have a consistent salary DCA by frequently investing a portion of your salary has been frequently shown to be a very good idea of long periods over saving up a bunch of money and investing it all at once.  In this case you get the compounding advantage of investing early and you avoid investing a large chunk of money when the market is overvalued. Your idea is a good one, but, as usual, the devil is in the details, and implementation might not be as easy as you think.  The comments on the question have pointed out your Steps 2 and 4 are  not necessarily the best way of doing things, and that perhaps  keeping the principal  amount invested in the same fund instead of taking it all out and re-investing it in a similar, but different, fund might be better. The other points for you to consider are as follows. How do you identify which of the thousands of conventional mutual  funds and ETFs is the average-risk / high-gain mutual fund into which you will place your initial investment?  Broadly speaking, most actively managed mutual fund with average risk are likely to give you  less-than-average gains over long periods of time.  The  unfortunate truth, to which many pay only Lipper service, is that  X% of actively managed mutual funds  in a specific category failed  to beat the average gain of all funds in that category, or the  corresponding index, e.g. S&P 500 Index for large-stock mutual funds, over the past N years, where X is generally between 70 and  100, and N is 5, 10, 15 etc.  Indeed, one of the arguments in  favor of investing in a very low-cost index fund is that you are effectively guaranteed the average gain (or loss :-(, don't forget the possibility of loss). This, of course, is also the argument used against investing in index funds.  Why invest in boring index funds and settle for average gains (at essentially no risk of not getting the average performance: average performance is close to guaranteed) when you can  get much more out of your investments by investing in a fund that is among the (100-X)% funds that had better than average returns?  The difficulty is that which funds are X-rated and which non-X-rated (i.e. rated G = good or PG = pretty good), is known only in hindsight whereas what you need is foresight. As everyone will tell you, past performance does not guarantee future results.  As someone (John Bogle?) said,  when you invest in a mutual fund, you are in the position of a rower in rowboat: you can see where you have been but not where you are going.  In summary, implementation of your strategy needs a good crystal ball to look into the future. There is no such things as a guaranteed bond fund. They also have risks though not necessarily the same as in a stock mutual fund. You need to have a Plan B in mind in case your chosen mutual fund takes a longer time than expected to return the 10% gain that you want to use to trigger profit-taking and investment of the gain into a low-risk bond fund, and also maybe a Plan C in case the vagaries of the market cause your chosen mutual fund to have negative return for some time. What is the exit strategy? Dollar cost averaging moderates risk. But you pay for this by giving up the chance for higher gains. If you took a hundred people and randomly had them fully buy into the market over a decade period, some of those people will do very well (relative to the rest) while others will do very poorly (relatively). If you dollar cost average, your performance would fall into the middle so you don't fall into the bottom (but you won't fall into the top either). The time horizon for your 401K/IRA is essentially the same, and it doesn't stop at the day you retire. On the day you do the rollover you will be transferring your funds into similar investments. S&P500 index to S&P 500 index; 20xx retirement date to 20xx retirement date; small cap to small cap... If your vested portion is worth X $'s when the funds are sold, that is the amount that will be transferred to the IRA  custodian or the custodian for the new employer. Use the transfer to make any rebalancing adjustments that you want to make. But with as much as a year before you leave the company if you need to rebalance now, then do that irrespective of your leaving. Cash is what is transferred, not the individual stock or mutual fund shares. Only move your funds into a money market account with your current 401K if that makes the most sense for your retirement plan. Also keep in mind unless the amount in the 401K is very small you don't have to do this on your last day of work. Even if you are putting the funds in a IRA wait until you have started with the new company and so can define all your buckets based on the options in the new company. "The mutual fund is legally its own company that you're investing in, with its own expenses. Mutual fund expense ratios are a calculated value, not a promise that you'll pay a certain percentage on a particular day. That is to say, at the end of their fiscal year, a fund will total up how much it spent on administration and divide it by the total assets under management to calculate what the expense ratio is for that year, and publish it in the annual report. But you can't just ""pay the fee"" for any given year. In a ""regular"" account, you certainly could look at what expenses were paid for each fund by multiplying the expense ratio by your investment, and use it in some way to figure out how much additional you want to contribute to ""make it whole"" again. But it makes about as much sense as trying to pay the commission for buying a single stock out of one checking account while paying for the share price out of another. It may help you in some sort of mental accounting of expenses, but since it's all your money, and the expenses are all part of what you're paying to be able to invest, it's not really doing much good since money is fungible. In a retirement account with contribution limits, it still doesn't really make sense, since any contribution from outside funds to try to pay for expense ratios would be counted as contributions like any other. Again, I guess it could somehow help you account for how much money you wanted to contribute in a year, but I'm not really sure it would help you much. Some funds or brokerages do have non-expense-ratio-based fees, and in some cases you can pay for those from outside the account. And there are a couple cases where for a retirement account this lets you keep your contributions invested while paying for fees from outside funds. This may be the kind of thing that your coworker was referring to, though it's hard to tell exactly from your description. Usually it's best just to have investments with as low fees as possible regardless, since they're one of the biggest drags on returns, and I'd be very wary of any brokerage-based fees when there are very cheap and free mutual fund brokerages out there." Can you isolate the market impact to just the Fed's quantitative easing?  Can you rule out the future economic predictions of low growth and that there are reasons why the Fed has kept rates low and is trying its best to stimulate the economy?  Just something to consider here. The key is to understand what is the greater picture here as well as the question of which stock market index are you looking at that has done so badly.  Some stocks may be down and others may be up so it isn't necessarily bad for all equally. I think it depends on who is being paid for your app.  Do you have a company the is being paid?  Or is it you personally? If you have a company then that income will disappear by offsetting it through expenses to get the software developed. If they are paying you personally then you can probably still get the income to disappear by file home-office expenses. I think either way you need to talk to an accountant. If you don't want to mess with it since the amount of income is small then I would think you can file it as additional income (maybe a 1099).