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.
This decision depends upon a few things. I will list a couple:- 1.) What is your perception about financial markets in your time span of investments? 2.) What kind of returns are you expecting? 3.) How much liquidity do you have to take care of your daily/monthly expenses? 1.)If your perception about financial markets is weak for the near future, do not invest all your money in a mutual fund at 1 time. Because, if the market falls drastically, chances are that your fund will also lose a lot of money and the NAV will go down. On the other hand, if you think it is strong, go ahead and invest all at one time. 2.) If you are expecting very high returns in a short time frame, then SIP might not be a very good option as you are only investing a portion of your money. So, if the market goes higher, then you will make money only on what you have invested till date and also buy into the fund in the upcoming month at a higher rate( So you will get less units).  3.) If you put all your money into a mutual fund, will you have enough money to take care of your daily needs and emergencies? The worst thing about an investment is putting in all what you have and then being forced to sell in a bear market at a lower rate because you really require the money. Other option is taking a personal loan(15-16%) and taking care of your daily needs, but that would not make sense either as the average return that you can expect from a mutual fund in India is 12-13%. To summarize:- 1.) If you have money to spare and think the market is going to go higher, a mutual fund is a better option. 2.) If you have the money to spare and think that the market is going to fall, DON'T DO ANYTHING!.(It is always better to be even than lose). 3.) If you don't have the money and don't know about markets, but want to be part of it, then you can invest in an SIP because the advantages of this are if the market goes high, you make money on what you've put it, and if the market falls, you get to buy more units of the fund for a cheaper price. Eventually, you can expect to make a return of 14-15% on these, but again, INVESTMENTS ARE SUBJECT TO MARKET RISK! Please watch the funds average return over the last 10 years and their portfolio holdings. All the best!:) PS:- I am assuming you are talking about equity funds. "From http://blog.ometer.com/2008/03/27/index-funds/ , Lots of sensible advisers will tell you to buy index funds, but   importantly, the advice is not simply ""buy index funds.""   There are at least two other critical details: 1) asset allocation   across multiple well-chosen indexes, maintained through regular   rebalancing, and 2) dollar cost averaging (or,   much-more-complex-but-probably-slightly-better, value averaging). The   advice is not to take your single lump sum and buy and hold a   cap-weighted index forever. The advice is an investment   discipline which involves action over time, and an initial   choice among indexes. An index-fund-based   strategy is not completely passive, it involves some active risk   control through rebalancing and averaging. If you'd held a balanced portfolio over the last ten years and rebalanced, and even better if you'd dollar cost averaged, you'd have done fine. Your reaction to the last 10 years incidentally is why I don't believe an almost-all-stocks allocation makes sense for most people even if they're pretty young. More detail in this answer: How would bonds fare if interest rates rose? I think some index fund advocacy and books do people a disservice by focusing too much on the extra cost of active management and why index funds are a good deal.  That point is true, but for most investors, asset allocation, rebalancing, and ""autopilotness"" of their setup are more important to outcome than the expense ratio." "This turned out be a lot longer than I expected.  So, here's the overview. Despite the presence of asset allocation calculators and what not, this is a subjective matter.  Only you know how much risk you are willing to take.  You seem to be aware of one rule of thumb, namely that with a longer investing horizon you can stand to take on more risk.  However, how much risk you should take is subject to your own risk aversion.  Honestly, the best way to answer your questions is to educate yourself about the individual topics.  There are just too many variables to provide neat, concise answers to such a broad question.  There are no easy ways around this.  You should not blindly rely on the opinions of others, but rather use your own judgment to asses their advice. Some of the links I provide in the main text: S&P 500: Total and Inflation-Adjusted Historical Returns 10-year index fund returns The Motley Fool Risk aversion Disclaimer: These are the opinions of an enthusiastic amateur.  Why should I invest 20% in domestic large cap and 10% in developing markets instead of 10% in domestic large cap and 20% in developing markets? Should I invest in REITs? Why or why not?  Simply put, developing markets are very risky.  Even if you have a long investment horizon, you should pace yourself and not take on too much risk.  How much is ""too much"" is ultimately subjective.  Specific to why 10% in developing vs 20% in large cap, it is probably because 10% seems like a reasonable amount of your total portfolio to gamble.  Another way to look at this is to consider that 10% as gone, because it is invested in very risky markets.  So, if you're willing to take a 20% haircut, then by all means do that.  However, realize that you may be throwing 1/5 of your money out the window. Meanwhile, REITs can be quite risky as investing in the real estate market itself can be quite risky.  One reason is that the assets are very much fixed in place and thus can not be liquidated in the same way as other assets.  Thus, you are subject to the vicissitudes of a relatively small market.  Another issue is the large capital outlays required for most commercial building projects, thus typically requiring quite a bit of credit and risk.  Another way to put it: Donald Trump made his name in real estate, but it was (and still is) a very bumpy ride.  Yet another way to put it: you have to build it before they will come and there is no guarantee that they will like what you built. What mutual funds or index funds should I investigate to implement these strategies?  I would generally avoid actively managed mutual funds, due to the expenses.  They can seriously eat into the returns.  There is a reason that the most mutual funds compare themselves to the Lipper average instead of something like the S&P 500.  All of those costs involved in managing a mutual fund (teams of people and trading costs) tend to weigh down on them quite heavily.  As the Motley Fool expounded on years ago, if you can not do better than the S&P 500, you should save yourself the headaches and simply invest in an S&P 500 index fund. That said, depending on your skill (and luck) picking stocks (or even funds), you may very well have been able to beat the S&P 500 over the past 10 years.  Of course, you may have also done a whole lot worse.  This article discusses the performance of the S&P 500 over the past 60 years.  As you can see, the past 10 years have been a very bumpy ride yielding in a negative return.  Again, keep in mind that you could have done much worse with other investments. That site, Simple Stock Investing may be a good place to start educating yourself.  I am not familiar with the site, so do not take this as an endorsement.  A quick once-over of the material on the site leads me to believe that it may provide a good bit of information in readily digestible forms.  The Motley Fool was a favorite site of mine in the past for the individual investor.  However, they seem to have turned to the dark side, charging for much of their advice.  That said, it may still be a good place to get started.  You may also decide that it is worth paying for their advice. This blog post, though dated, compares some Vanguard index funds and is a light introduction into the contrarian view of investing.  Simply put, this view holds that one should not be a lemming following the crowd, rather one should do the opposite of what everyone else is doing.  One strong argument in favor of this view is the fact that as more people pile onto an investing strategy or into a particular market, the yields thin out and the risk of a correction (i.e. a downturn) increases.   In the worst case, this leads to a bubble, which corrects itself suddenly (or ""pops"" thus the term ""bubble"") leading to quite a bit of pain for the unprepared participants.  An unprepared participant is one who is not hedged properly.  Basically, this means they were not invested in other markets/strategies that would increase in yield as a result of the event that caused the bubble to pop.   Note that the recent housing bubble and resulting credit crunch beat quite heavily on the both the stock and bond markets.  So, the easy hedge for stocks being bonds did not necessarily work out so well.  This makes sense, as the housing bubble burst due to concerns over easy credit. Unfortunately, I don't have any good resources on hand that may provide starting points or discuss the various investing strategies.  I must admit that I am turning my interests back to investing after a hiatus.   As I stated, I used to really like the Motley Fool, but now I am somewhat suspicious of them.  The main reason is the fact that as they were exploring alternatives to advertising driven revenue for their site, they promised to always have free resources available for those unwilling to pay for their advice.  A cursory review of their site does show a decent amount of general investing information, so take these words with a grain of salt.  (Another reason I am suspicious of them is the fact that they ""spammed"" me with lots of enticements to pay for their advice which seemed just like the type of advice they spoke against.) Anyway, time to put the soapbox away.  As I do that though, I should explain the reason for this soapboxing.  Simply put, investing is a risky endeavor, any way you slice it.  You can never eliminate risk, you can only hope to reduce it to an acceptable level.  What is acceptable is subject to your situation and to the magnitude of your risk aversion.  Ultimately, it is rather subjective and you should not blindly follow someone else's opinion (professional or otherwise).  Point being, use your judgment to evaluate anything you read about investing.   If it sounds too good to be true, it probably is.  If someone purports to have some strategy for guaranteed (steady) returns, be very suspicious of it.  (Read up on the Bernard Madoff scandal.)  If someone is putting on a heavy sales pitch, be weary.  Be especially suspicious of anyone asking you to pay for their advice before giving you any solid understanding of their strategy.  Sure, many people want to get paid for their advice in some way (in fact, I am getting ""paid"" with reputation on this site).  However, if they take the sketchy approach of a slimy salesmen, they are likely making more money from selling their strategy, than they are from the advice itself.  Most likely, if they were getting outsized returns from their strategy they would keep quiet about it and continue using it themselves.  As stated before, the more people pile onto a strategy, the smaller the returns.  The typical model for selling is to make money from the sale.  When the item being sold is an intangible good, your risk as a buyer increases. You may wonder why I have written at length without much discussion of asset allocation.  One reason is that I am still a relative neophyte and have a mostly high level understanding of the various strategies.  While I feel confident enough in my understanding for my own purposes, I do not necessarily feel confident creating an asset allocation strategy for someone else.  The more important reason is that this is a subjective matter with a lot of variables to consider.  If you want a quick and simple answer, I am afraid you will be disappointed.  The best approach is to educate yourself and make these decisions for yourself.  Hence, my attempt to educate you as best as I can at this point in time. Personally, I suggest you do what I did.  Start reading the Wall Street Journal every day. (An acceptable substitute may be the business section of the New York Times.)  At first you will be overwhelmed with information, but in the long run it will pay off.  Another good piece of advice is to be patient and not rush into investing.   If you are in a hurry to determine how you should invest in a 401(k) or other such investment vehicle due to a desire to take advantage of an employer's matching funds, then I would place my money in an S&P 500 index fund.  I would also explore placing some of that money into broad index funds from other regions of the globe.  The reason for broad index funds is to provide some protection from the normal fluctuations and to reduce the risk of a sudden downturn causing you a lot pain while you determine the best approach for yourself.  In this scenario, think more about capital preservation and hedging against inflation then about ""beating"" the market." "I've been taking all the cheap fixed-rate debt banks would like to give me lately. What Rate? In practice I find the only way I get a low-enough rate on a longish-term fixed-rate loan is to use collateral. That is, auto loans and home loans. I haven't seen any personal loans with a low enough fixed rate. (Student loans may be cheap enough if they're subsidized, I guess.) Here's how I think of the rate: If you look at https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations , the average annual return on 80% bonds / 20% stocks is 6.7%, with worst year -10.3%. That's a nominal return not a real return. If you subtract taxes, say your marginal rate (the rate you pay on your last dollar of income) is 28% federal plus 5% state, then if you have no tax deferral the 6.7% becomes about a 4.5% average, with reasonably wide variation year-by-year. (You can mess with this, e.g. using tax-exempt bonds and tax-efficient stock funds, etc. which would be wise, but for deciding whether to take out debt, getting too detailed is false precision. The 6.7% number is only an average to begin with, not a guarantee.) Say you pay 4.5% on a loan, and you keep your money in very conservative investments, that's probably at least going to break even if you give it some years. It certainly can and sometimes will fail to break even over some time periods, but the risk of outright catastrophe is low. If your annual loss is 10%, that sucks, but it should not ruin your life. In practice, I got a home loan for close to 4.5% which is tax-deductible so a lower effective rate, and got an auto loan subsidized by the manufacturer for under 3%. Both are long-term fixed-rate loans with collateral. So I was happy to borrow this money paying about a 3% effective rate in both cases, well below my rough threshold of 4.5%. I do not, however, run a credit card balance; even though one of my cards is only 7% right now, 7% is too high, and it's a floating rate that could rise. The personal loans I've seen have too-high rates also. Thoughts Overall I think using debt as a tool requires that you're already financially stable, such that the debt isn't creating a risky situation. The debt should be used to increase liquidity and flexibility and perhaps boost investment returns a bit. Where you're likely to get into trouble is using debt to increase your purchasing power, especially if you use debt to buy things that aren't necessary. For me the primary reason to use debt is flexibility and liquidity, and the secondary ""bonus"" reason is a possible spread between the debt rate and investment returns." "First, it's an exaggeration to say ""every"" dollar. Traditional mutual funds, including money-market funds, keep a small fraction of their assets in cash for day-to-day transactions, maybe 1%. If you invest $1, they put that in the cash bucket and issue you a share. If you and 999 other people invest $100 each,  not offset by people redeeming, they take the aggregated $100,000 and buy a bond or two. Conversely, if you redeem one share it comes out of cash, but if lots of people redeem  they sell some bond(s) to cover those redemptions -- which works as long as the bond(s) can in fact be sold for close enough to their recorded value. And this doesn't mean they ""can't fail"". Even though they are (almost totally) invested in securities  that are thought to be among the safest and most liquid available,  in sufficiently extreme circumstances those investments can fall in market value,  or they can become illiquid and unavailable to cover ""withdrawals"" (redemptions). ETFs are also fully invested, but the process is less direct. You don't just send money to the fund company. Instead: Thus as long as the underlyings for your ETF hold their value, which for a money market they are designed to, and the markets are open and the market maker firms are operating, your ETF shares are well backed. See https://en.wikipedia.org/wiki/Exchange-traded_fund for more." With 30 years until retirement I would not be very concerned about the 3% cash rule. If you do want to follow that advice I would just keep that money in a cash equivalent like a money market fund or short term cd. No one knows if the market is high right now.  To know that you would need to compare it to the future, not the past. If you put all your money in right now, you run the risk of putting it in at what turns out to be a bad time.  If you spread it out, you will for sure put some of it in at a bad time (either the stuff you put in now, or the stuff you put in later).  The strategy that, on average, will make you the most money is to put everything in now.  If your risk tolerance allows that (it sounds like it does) then I think going all in makes sense. There really aren't significant downsides to buying a ton at once.  You aren't going to move the needle on a big Vanguard fund with that amount and there isn't a tax consequence or anything to buying.  Of course, when you sell, you will need to pay capital gains tax on any gains, but that's a later chapter. The bigger consideration is to be smart right now about avoiding taxes.  If your income is low, max out your Roth IRAs.  If you need to you can later use that money for a house or you can pull the contribution part out at any time if you want without a penalty. Is a $50K buffer too much?  Normally I would say yes, it's excessive.  I have 5 rather expensive kids and I keep $20K in cash, which seems high, if anything.  However, if you are unemployed or your income isn't covering your expenses, then keeping a larger pot in cash makes good sense until your cash flow firms up.  Setting $50K or something close to that aside sounds a lot like something I would do in your shoes. BTW where are you finding a savings account that pays 2%? 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.