WWII 015: The Herd Mentality, What To Do With Your Bonus, Seasonal Risk, Federal Deficit, and Flying Burritos

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In this episode I talk about the Herd Mentality and illustrate some concepts of how the herd reacts to market stimuli.


Ask JB:

Does consistently investing your annual bonus in one lump at the beginning of the year introduce seasonal risk? (self.investing)

submitted 8 months ago * by aladdinator

Every year we get an annual bonus that can be pushed into our pre-tax 401k, starting in January. Arguably lump sum statistically beats out dollar cost averaging.

So say I lump sum 100% of my bonus up to limits every January, am I introducing a 'seasonal' risk by always investing on the turn of a new year?

Seasonl risk effects due to say, investors tax loss harvesting in the year prior causing consistent effects (positive or negative) on the market?

In the worst case, if hypothetically stock markets are consistently propped up in January due to investors buying in, that would mean your bonus is buying into the market at a high price consistently.

If so, how should this be judged relative to the risks of dollar cost averaging vs. lump sum?

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About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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