A reader asks:
My accomplice and I are each 30 y/o and function a small enterprise. We made the max SEP IRA contribution in December 2025 of $70k; then one other max contribution for FY 2026 of $72k in January 2026. The SEP IRA has $365k complete market worth and now about $145k in money. My query is; psychologically how do I make investments this cash? I do know I can comply with all of Ben’s guidelines: lump sum over DCA, diversify, handle threat tolerance and many others. However now I’m beginning to really feel the stress on condition that the account is at such a big quantity. What ought to we do?
The SEP IRA is one most individuals are possible unfamiliar with.
The 2026 contribution restrict is $72,000. For a standard or Roth IRA this 12 months it’s simply $7,500. Why the massive distinction?
SEP IRAs are supposed for small enterprise homeowners, freelancers and self-employed people who don’t have entry to a retirement plan like a 401k. And if in case you have workers it’s also possible to contribute on their behalf.1
It’s a reasonably whole lot for sole proprietors who need to stash an honest amount of cash into tax-deferred retirement accounts. I’ve a SEP IRA, and it virtually doesn’t appear honest that my restrict is that prime.2
If I have been America’s retirement czar, I might dispose of all the totally different accounts — 401k, IRA, Roth, HSA, 529, Solo 401k, SEP IRA, and many others. — and simply make one large contribution restrict for everybody in a single account. However I digress…
Onto the true query right here — you’re sitting on a giant lump sum of money within the six figures that makes up 40% of your IRA. That’s some huge cash. It’s comprehensible why you are feeling the stress on this one. There’s extra at stake right here.
I’ve gone over the mathematics of lump sum investing versus greenback value averaging on the weblog many occasions through the years.
A lump sum into the market makes extra sense from a likelihood perspective as a result of more often than not the inventory market goes up.
Since 1928, the US inventory market has been up in 73% of all years. Since 1950, the inventory market has been constructive in 80% of rolling 12 month intervals.
That’s an incredible win charge.
Nonetheless, Murphy’s Regulation of Investing applies right here.
Virtually each investor with a lump sum of money to take a position assumes something that may go improper will go improper after they put the cash to work. These emotions are much more amplified when the inventory market has been doing properly.
We’ve a whole lot of these conversations with our purchasers who come to us with money from the sale of a enterprise, concentrated inventory place, RSUs, and many others.
Some individuals are swayed by the mathematics. You present them the numbers, the sunshine bulb goes off and so they make the spreadsheet selection by placing the lump sum to work instantly.
Others see the numbers, perceive the numbers, however want to make a extra psychologically pushed resolution to common in over time.
Neither of those selections is essentially proper or improper. It actually depends upon which selection you’ll remorse extra — lacking out on potential positive factors or lacking out on potential losses.
Listed below are some methods in which you’ll go about implementing a method to get your money invested:
Rip off the bandaid. In case you’re going to place that total lump sum to work simply do it and don’t look again. The market goes up and down. That’s how shares work. In case you rip off the bandaid, there’s no second guessing.
Break up the distinction. You might additionally put a lump sum to work instantly and common into the market with the remainder. Perhaps you set that 2025 contribution to work straight away after which provide you with a DCA schedule for the 2026 money.
That means your whole bases are coated.
You might create some thresholds. The most important cause you are concerned about doing a lump sum is as a result of the market may fall off the bed proper after you pull the set off. Some individuals like the concept of ready for a correction to place cash to work.
I’m not one among them.
The longer you wait, the more durable it’s to take a position. Money turns into an dependancy. If the market takes off there isn’t any entry level low sufficient to get you again in when it lastly drops.
However you can create a DCA schedule with some off-ramps. If the market falls 10%, 15%, perhaps 20% then you definately give your self the flexibility to hurry up the method. This is smart to me so long as you’re already periodically investing.
No matter plan you provide you with, simply write it down.
In case you’re averaging into the market, write down the cadence you select (weekly, month-to-month, quarterly, and many others.) after which keep it up.
In case you’re placing the whole lump sum in at present write down why you’re doing it.
In case you’re going to separate the distinction or look forward to a correction or another variation, write down your plan and the explanations in your plan.
Decide a plan, persist with the plan.
Typically you’ll like the end result, generally you gained’t however we’re all coping with imperfect details about the long run.
You make an knowledgeable resolution based mostly in your emotional make-up and knowledge out there to you on the time, write it all the way down to remind your self, after which transfer on along with your life.
The laborious half is out of the way in which.
You already saved lots of cash.
I mentioned this query on the newest episode of Ask the Compound:
Invoice Candy joined me on the present once more this week to reply questions on healthcare choices in early retirement, in-plan Roth conversions, the key sauce of retirement planning and the way the brand new Trump financial savings accounts work.
Additional Studying:
The Psychology of Sitting in Money
1In case you contribute 10% of your wage because the employer you would need to additionally do a ten% contribution in your worker based mostly on their wage.
2I’ve an LLC for A Wealth of Widespread Sense for advert income, e book gross sales, talking gigs and such. Technically, I’m not a businessman; I’m a enterprise, man.
