Does It Matter Whether You Invest Weekly, Monthly, or Once a Year?
Most people pick a contribution schedule based on when they get paid and never think about it again. That is probably the right instinct, but it is worth knowing what the choice actually costs, because the answer is not zero and it is not what most people would guess.
#The test
Five plans, all putting $72,000 into VOO across the same ten years. The only difference is how often the money goes in. The weekly, biweekly, quarterly, and annual amounts are simply the equivalents of $600 a month, so the totals match to within a dollar.
| Plan | Invested | Final value | Ann. return |
|---|---|---|---|
| $138.46 every weekVOO | $71,999 | $164,332 | +15.90% |
| $276.92 every two weeksVOO | $71,999 | $164,175 | +15.91% |
| $600 a monthVOO | $72,000 | $163,171 | +15.85% |
| $1,800 a quarterVOO | $72,000 | $161,135 | +15.85% |
| $7,200 once a yearVOO | $72,000 | $151,835 | +15.78% |
#Two things worth noticing
First, the annualized returns are almost identical. Weekly comes out at 15.90 percent and annual at 15.78 percent, a gap of about a tenth of a percentage point across a decade. As a measure of how well the money performed while invested, the schedule barely registers.
Second, the ending balances are not identical at all. Weekly finished at $164,332 and annual at $151,835, a difference of $12,496 on identical contributions. That is roughly 17 percent of everything that was put in.
#Where the difference comes from
Consider the annual plan. It deposits $7,200 on one day each year. The money for months two through twelve is not invested during those months; in this simulation it simply is not there yet. The weekly plan has already put roughly a twelfth of that year’s money to work by the end of the first month.
Averaged across the decade, the weekly plan has more money invested at any given moment than the annual plan does, even though both contribute the same total. More money invested for more time produces more growth, at essentially the same rate of return.
This is the same distinction covered in why IRR and CAGR give different answers: total dollars and annualized rate answer different questions, and a plan can win on one while losing on the other. Here the frequent plans win on dollars and tie on rate.
#The ordering is not a rule
More frequent contributions came out ahead here, and they generally will over a period where the market rose. But that is a consequence of this decade, not a law.
In a market that fell for years and then recovered, an annual plan that happened to deposit near the lows could beat a weekly plan that spread its buying evenly. The advantage of frequency is having money invested sooner, and being invested sooner is only an advantage when the market subsequently rises. Over the 2000 to 2010 decade, being invested sooner was repeatedly a disadvantage.
#What this means in practice
- Contribute when you are paid. Aligning deposits with income is what makes a plan sustainable, and sustainability matters enormously more than the difference measured here.
- Do not save up to invest in a lump each year. This is the one finding with a practical edge to it. Holding cash aside for an annual deposit is the version that actually costs something.
- Weekly over monthly is not worth engineering. A difference of about $1,200 over a decade, on $72,000, is inside the noise of everything else that will affect your outcome.
- Watch out for per-trade commissions. This simulation excludes them. Where a brokerage charges per transaction, frequent contributions can easily cost more in fees than the timing advantage is worth.
#What this test leaves out
The annual plan is modeled as contributing nothing for eleven months and then $7,200 at once. A real investor saving toward an annual deposit would hold that money somewhere in the meantime, probably earning interest. This simulation gives it a zero return while it waits, which overstates the gap.
How much it overstates depends on the rate. At the cash yields available through much of the last few years, a meaningful fraction of the $12,496 would have been recovered. At the near zero rates that prevailed for much of the 2010s, very little of it would have been.
There is also no tax here, and no commissions, which is stated in the methodology.
#Test your own schedule
Run your fund with your real contribution amount, then run it again with the same total on a different cadence. The gap you see is what your schedule is worth. For most realistic schedules it will be small, which is itself a useful thing to confirm rather than assume.