The theory is not based on interest rates, but rather tax loss harvesting. People have a better idea of what their tax liability might be at the end of the year, and it's possible they might want to reduce their Capital Gains tax bill by selling positions that are negative to lock in a loss, offsetting some other gain. That means more selling in December, so it would make sense to buy as close to Jan 1 as possible, when the extra selling stops.

But it's just another way to time the market, and timing the market is a bad strategy for the average investor. Just keep investing on your set schedule, and you will find that you still do OK, with much less drama.

The sooner the better, the only caveat being that you might not know whether to fund a traditional IRA or a Roth IRA until you’ve done your taxes for the year. That’s why the IRS lets you fund the previous year’s IRA until tax filing deadline of the next year (usually April 15th).

Say you have $7000 day 1. Option 1 is to invest it all immediately. Option 2 is to invest only a portion and just keep the rest in cash until you invest later.

In the long run, the invested side always does better than the cash side, interest rates on a savings account by definition never match the long run gains in the stock market. You get a premium for your money in the stock market because it can go negative in the short term.

There is a reason to do Option 2, if you're saving for a house or a car or something you probably don't want to risk the market going down right before you want to make that purchase. Or if you are very sensitive to losses and you would he anxious or devastated if you put the money in and saw the value drop.

But for retirement funds, you want to maximize long term gains so it makes the most sense to put it in Day 1.

investing it as a lump sum on January 1st will produce higher returns more often that investing on a monthly/weekly basis

Correct, you're referring to investing via lump sum versus DCA (dollar-cost averaging). And you also need to consider your investment's time in the market - Most often the longer you are invested the better your returns are over a long timeframe. And this is where lump sum comes in since you are investing everything as soon as possible in the tax year.

But of course no one knows the future. A terrible year in the market = your early year lump sum looking like a bad bet. But we're talking about an IRA here, the whole idea is to leave it invested long term so even a terrible year should pan out on its own over time.

All that aside if you're really worried about it and/or strongly feel that markets are going be down for the entirely of 2024 then there's nothing wrong with going DCA (investing every week/month/whatever).

Typical long term gains for an Ira mutual fund is 10%. Current high yield interest accounts are around 5%. If you put everything in at the beginning of the year, it has the whole year to earn double what it would in a high yield savings account. If you put it in each month, then only 1/12 of it is earning extra returns for the whole year.