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  • Writer's pictureNick Heil

Pay Day Friday 6/19/2020

Who doesn't love a payday Friday?

I know I do and you should to if you are paying yourself first.

Welcome to my micro-blog series where each payday I write a really quick blog discussing where my savings distributions are going.

Today I contributed the following:

$570 towards my Vanguard brokerage accounts.

$200 towards my Vanguard Roth IRA.

$145.14 into my pension plan through work.

These contributions are consistent with the contributions I have been making all year and my overall savings plan for the year. I'm looking to max out my Roth IRA with contributions of $6,000 and save and invest over $20,000 in total for the year. If you take ($570 + $200 + $145.14) * 26=$23,793.64, you will notice I will exceed my goal of $20,000

(You will also notice that my $200 contributions to my Roth IRA only total $5,200 for the year on a bi-weekly pay basis. Once per month I make up for this difference by contributing to the IRA from a few of my passive income sources, so for the year I will still end up maxing out my Roth.)

However, in my goal of $20,000 I don't count my pension contributions. First and foremost I am required to make those pension plan contributions as long as I work at my job, so I don't really have a saw in the matter. For that reason, I was looking to save $20,000 in my own controllable after tax earnings. In addition, if I leave my job too soon I only get those pension contributions back interest free, so the opportunity cost of those funds is quite high.

By contributing $570 to my brokerage and $200 to my Roth IRA every pay check I will still surpass my goal of $20,000.

As I write this morning, it's looking like the markets will open in the green around 1% based on pre-market activity. For this reason, I won't rush to actually purchase right away. I'll monitor the markets throughout the day and if they turn negative or hold relatively flat then I may make my normal dollar cost average purchases. If they maintain in the green all day, then I may wait a few days until we get a flat or negative day before I make my purchases.

I do this because I have noticed that almost every Friday that I'm paid (bi-weekly) the markets tend to be up a couple percentage points. I don't know if this is just coincidence yet, or if maybe I'm lined up with the rest of American's getting paid by-weekly and making contributions to their 401(k)'s etc… I plan on doing a study of this in the near future to see if there is any validity to my hunch.

In the meantime, I'm going to be cautious about making purchases on the same day I make my contributions. I have noticed that if I just wait a few hours or a few days then in most cases I could allocate my distributions at lower prices than if I purchase right away on the same day I make my contributions.

If this holds true over time, then I should see a small boost in my returns from being a little more patient. In the grant scheme of things if you don't want to watch your contributions this closely it is perfectly fine to set up automatic dollar cost average purchases instead.

I'm a nerd so I like to watch them a little more closely and I know I will still make my purchases within a few days no matter what and will stay consistent with this. If you worry you won't consistently keep up with this strategy, then you should set up automatic purchases so you don't interrupt the dollar cost averaging strategy.

For anyone new reading this, dollar cost averaging is an investment strategy where you make consistent contributions/investments over a long period of time. Over time you end up purchasing less of an investment when prices are high and more of an investment when prices are low. All sorts of academic and investment studies have proven this to be an effective strategy.

This is essentially what your 401(k) is doing or retirement plan if you have one.

Thanks for reading! What are you guys investing in? What's your annual savings goal? Let me know in the comments!

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