When to Invest Bonus Forum

[masterherm]

I like to save the bonus (issued in December) in cash through January. In January, I max out my Roth for the year using some of that bonus cash. I also invest 100% of my pre-tax January paychecks into my traditional 401(k), maxing that out for the year as well, while I "live on" the remaining bonus money instead of my January paycheck (since I receive essentially $0 for January). After my Roth and traditional 401(k) are maxed out for the year (in January), I will recalibrate and invest any excess bonus money in my regular brokerage account.

This approach - living on the bonus funds for January before investing them - allows me to maximize all my retirement funds for the following year in January. It means I get larger paychecks the rest of the year (without having to worry about funding retirement accounts), maximize my tax-advantaged retirement accounts as early as possible (maximizing long-term net gains), and maintain cash flexibility (I usually need some excess cash to pay the remaining taxes on the bonus as well, since it is only taxed at 22% not the regular income tax rate).

[nealric]

I like to save the bonus (issued in December) in cash through January. In January, I max out my Roth for the year using some of that bonus cash. I also invest 100% of my pre-tax January paychecks into my traditional 401(k), maxing that out for the year as well, while I "live on" the remaining bonus money instead of my January paycheck (since I receive essentially $0 for January). After my Roth and traditional 401(k) are maxed out for the year (in January), I will recalibrate and invest any excess bonus money in my regular brokerage account.

This approach - living on the bonus funds for January before investing them - allows me to maximize all my retirement funds for the following year in January. It means I get larger paychecks the rest of the year (without having to worry about funding retirement accounts), maximize my tax-advantaged retirement accounts as early as possible (maximizing long-term net gains), and maintain cash flexibility (I usually need some excess cash to pay the remaining taxes on the bonus as well, since it is only taxed at 22% not the regular income tax rate).

Not a terrible strategy, but note that you don't want to do this if your employer has a 401k match, as they can't match you after you've hit the contribution cap.

[jamestaylorrecordsas]

I forgot. This is more applicable to the thread.

If Buffett can sit on $149bil in cash and wait for an opportunity, calamity or no calamity, then why should a 25 yr old with his bonus feel foolish for sitting on his $100k and waiting for a similar opportunity?

I kinda doubt Buffett was sitting on $149 billion in his checking account.

OP here - I also can't really take advantage of the same opportunities as Buffet. I don't have time to dig into particular investments and even if I did, my firm's securities trading policy would slow me down, if not stop me. Plus, I don't have a billion dollar BSD to waive around looking for a discount.

I'm really just trying to choose the best time to invest my bonus in an index fund given on the one hand conventional wisdom and on the other increased uncertainty regarding a recession.

Exactly, the Buffett discussion is irrelevant. I’m going to again advocate for investing in an index fund and forgetting it regardless of a potential recession, in part because it’s not clear to me what your alternative would be - money in the market will grow over the long term regardless of potential recession losses, whereas sitting on that money means it won’t grow at all.

The relevance of the Buffett discussion.
The most famous investor in the world is willing to sit on $149bil in cash and wait for an opportunity.

Berkshire shareholder meeting, above, the questioner gave buffet 6 dates when Buffett market timed yet Buffett evaded the question, saying that he just tries to get value for his money.

[Anonymous User]

Let's assume Buffett "market times."

He's... Buffett. He has an army of analysists. What do you have.

For that matter, what do you have compared to the other thousands of professional investors.

Even if it was possible to consistently eke something out of the market beyond normal returns, no one on this thread would be doing it, because anyone that could do that would have their own private island somewhere.

Invest when you have it to invest if you're not touching it for years. If you need it sooner than that, it probably shouldn't be in the market.