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Discussion Starter #1
I have always wondered why my investment manager suggests I contribute to my RRSP monthly when I already have the capital to invest everything at the beginning of the year.
Why would i not want to dump in all of my money at the beginning of the year into a fund that is always higher at the end of the year?
He says its better to average it out but I really wonder why...

cheers,
 

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I suspect he thinks dollar cost averaging would be more comfortable, but I agree that lump sums is the way to go.

Maybe his commission is somehow benefiting from monthly versus lump-sum contributions so he would prefer to even out your contribution across the year. If he is supposing that you have excess RRSP room through the year that you are not using up, then he would likely suggest to use the room as soon as the money is available. Back when I had an "advisor", he had no clue what RRSP room I actually had and I would go in in January and contribute the amount for the whole year. They likely assumed I was "catching up" with prior years, rather than contributing ahead for the year at hand.

Contributing ahead for the whole year can have a down side. When my company brought in an employer match pension, I had to wait several months to sign on because I had already maxxed my contribution that year and didn't want to do the paperwork to back out any of that. The 2K overcontribution limit was not enough to cover all the months.
 

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Zuma, there is a case to be made for cost averaging into investments, but it doesn't really hold water since no one knows what will happen over the course of a year. Circumstances might unfold that make lump sum investment look genius and vise versa for averaging. Nobody knows.

I think the more important element for you to learn is that your investment manager is paying for their retirement with your money. Will they offer the best advice that will benefit you the most?

You've shown enough interest in your investments to come to a DIY investment site looking for answers, so continue to educate yourself on investments with the goal of doing it yourself without an "investment manager" or whatever they call themselves.

ltr
 

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Discussion Starter #5
I think the only one that may be able to answer is an "advisor"... Has an advisor who may be reading this received more commission by getting the clients to invest monthly vs annually? My "advisor" is with ManuLife
 

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I think the only one that may be able to answer is an "advisor"... Has an advisor who may be reading this received more commission by getting the clients to invest monthly vs annually? My "advisor" is with ManuLife
... no wonder. I would be interested in what other firm experience he/she had other than with MFC.
 

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Discussion Starter #8
No, that's the last person that may be able to answer. You're not paying attention.

ltr
hahah.. ok.. NOT my advisor but maybe one that reads these forums who on the off chance might be honest... If there is such a thing anymore
 

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Lump sum is better mathematically, but monthly contributions also keep you paying year after year. This may be good for both the advisor and yourself. The math on lump sum is pretty clear that it is better than monthly, because 7 out of 10 times the market goes up, but monthly will be less volatile, which can also be good to keep you invested in those 3 out of 10 years; there are people who invest big lump sums in one of those years with a 30%+ drop and they are none too pleased (ref: 2007/08).
 

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zuma, it's really a Win/Win situation. As long as you have the funds to invest in your RRSP you will be better off in the future, whether that is making a lump sum contribution once a year or monthly contributions. I would just ask the advisor why he recommends monthly and then decide what you want to do. Since you have already made the decision to invest I would turn my attention to what you are invested in, the performance of your portfolio, and how it aligns with your personal investment objectives.
 

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Monthly is handled primarily by computer. Lump sum needs to be dealt with by the advisor, each time. It is probably a suttle bias so I doubt he/she cares that much.

Or he/she is enamored by the overhyped dollar cost averaging (DCA) which increases your rate of return a small amount, but what most don't understand is that it increases the rate of return when you have almost no money invested. Once more and more money gets invested in the RRSP, the DCA benefit decreases proportionately. It is a very overhyped benefit. No one has ever gotten rich from dollar cost averaging, but many advisors have not analyzed it close enough to see that.
 

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When I was With TD, we promoted DCA. we weren’t commission based though. I’ve never heard about an advisor earning more on DCA vs lump sum. Not saying it doesn’t exist, but I’ve never heard of it.

the banks like it since it makes the chequing account “stickier” and less likely to attrite. There’s probably also a large group who say they will make an annual contribution, yet never get around to it. The vast majority who don’t follow their finances like CMFs, could probably benefit from the automated solutions.
 

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DCA advantage: in volatile markets the price moves up and down, so you buy more units when the price is down and fewer units when the price is up, therefore your average unit price is lower.

Lump sum advantage: your money gets invested sooner, so you gain more investment return, and in registered accounts you get more tax free growth.

Of those two items I would think that lump sum would outperform most times. If you have the money why leave it in a savings account earning 1 or 2% when you could invest. One risk of lump sum is if you don't have the discipline to keep saving and end up going a year with no contribution. But most people don't have that lump sum saved up, so DCA is easy and automatic. Good on you if you can be such a dedicated investor and saver.
 

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Yes. I will add that lump requires a yes or no decision, by you, each year. DCA is an automatic yes decision that you only need to give once. Obviously an advisor gets paid more from yes decisions, by you, then no decisions so an auto yes certainly will be appealing to them, for that reason.

No, the advisor does not make any more money from DCA then they do from lump sum. What their experience will many times show is that instead of you investing $6,000 per year, you decide to invest $500 per month. Then when January and February come about, you might also add another $6,000 lump sum. If you were pure lump sum, $12,000 might feel like more then you would want to allocate at that exact moment. So DCA can generate more invested money for the advisor, which of course does make them more money.
 
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