Invest total now or Euro cost average with lump sum?

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Invest total now or Euro cost average with lump sum?

Postby boglethat » Fri Feb 01, 2013 7:22 pm

I am a 60 year old woman with low six figures in a 403B which I've been dollar cost averaging into since 1986. I was in about 90% low cost index mutual funds and 10% in a real estate fund. I was very risk tolerant because my husband had an extremely secure job. Then he was killed last summer in a tragic accident. We live in Germany and I am still here with my two college age kids (fortunately university is less expensive here than in the States). I work for a contractor here that supplies services to the US military and my job is not very secure because of the drawdown of troops here. I have now switched my retirement into an approximately 60/40 split between equities and fixed income. I have about a year's worth of dollars in an emergency fund. I have about 20,000 Euros in mortgage debt at a very low interest rate which I just will pay off over time. Otherwise, I have no debt. I am going to leave my husband's Euro investments (barely six figures) intact for the time being. That is all just background. What I want to know if I should immediately invest the proceeds from the life insurance which is about 115,000 Euros. It seems to me both stocks (DOW just closed over 14,000) and bonds are rather high at the moment so wouldn't I then be "buying high"? Is waiting timing the market? I've only ever dollar cost averaged with investments and do not really know how to handle a lump sum. Should I Euro cost average? If so, how should I do it? Or is there some other alternative? Thanks for any help anyone can give me.
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Re: Invest total now or Euro cost average with lump sum?

Postby Peter Foley » Fri Feb 01, 2013 9:59 pm

Even though your mortgage is at a very low interest rate, I would be tempted to use part of the proceeds to pay off the mortgage. I would then dollar cost average the rest into your desired mix of 60/40. I would dollar cost average over the course of a year. I would do it slowly because if you are laid off, you would potentially want a larger emergency fund. Paying off your mortgage reduces your expenses, another defensive move related to job insecurity.
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Re: Invest total now or Euro cost average with lump sum?

Postby crowd79 » Fri Feb 01, 2013 10:11 pm

I would take the €115,000 and pay off the €20,000 Mortgage. Even at a low rate, that'll free up cashflow with one hugely less monthly expense. I absolutely hate debt of any kind.

Also note that now might be a good time to convert some of the €'s into USD$'s with EUR/USD trading at the highest levels in 14 months. 1 Euro buys you $1.36 right now. I would sell half the €95,000 Euros for USD and invest with both currencies to mitigate currency risk in the future.
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Re: Invest total now or Euro cost average with lump sum?

Postby boglethat » Sat Feb 02, 2013 8:32 am

Any other opinions? I think I'll keep enough in cash to cover my debt but not pay it off immediately. I do not want to trade Euros to Dollars because we need more Euros than we do dollars and I assume there would be transaction costs associated with trading. I already have my retirment in dollars and will eventually have to trade some dollars to pay for our expenses here.
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Re: Invest total now or Euro cost average with lump sum?

Postby Bustoff » Sat Feb 02, 2013 9:47 am

boglethat wrote:I am a 60 year old woman with low six figures in a 403B ... I have about a year's worth of dollars in an emergency fund ... and my job is not very secure

What is your expected time horizon for this money, i.e. How long do you plan to keep this money invested ?
What are your plans in the event of a job loss and you remained unemployed longer than one year ?

boglethat wrote:It seems to me both stocks (DOW just closed over 14,000) and bonds are rather high at the moment so wouldn't I then be "buying high"?

Yes.

boglethat wrote:Is waiting timing the market?

That's a loaded question. In this context, how do you define "waiting" ?

boglethat wrote:Should I Euro cost average?

There are three possibilities if you ECA. Relative to current market valuations, your incremental purchases over time would be at lower, higher or roughly equivalent values.
“There are two times in a man's life when he should not speculate: when he can't afford it, and when he can.” | ― Mark Twain
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Re: Invest total now or Euro cost average with lump sum?

Postby boglethat » Sat Feb 02, 2013 7:59 pm

Excellent questions.

I would like to keep the money invested indefinitely and eventually draw from the earnings.

If I am unemployed for longer than a year I will probably start to draw money from my 403B and possibly begin to collect Social Security as a last resort since I know it is better to wait longer to start collecting.

It is not clear to me if you think I should invest it immediately or over time.
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Re: Invest total now or Euro cost average with lump sum?

Postby Bustoff » Sun Feb 03, 2013 6:15 am

You already have a significant stake in the game. By that I mean, if you agree with most of the asset allocation models that suggest "age in bonds", then you are currently overweight equities.
You have already decided, one way or another, (lump or ECA) this money is going into the market. In essence, you have made the decision to take your money to the casino. Now you want to know whether to place your bet at the Black Jack table or the Roulette Wheel. I think you are asking the wrong question.
At 60, if my job and health benefits were at risk, and I was supporting two college age kids, and my accumulated savings was low six figures, I would begin by keeping that new money away from the casino.
“There are two times in a man's life when he should not speculate: when he can't afford it, and when he can.” | ― Mark Twain
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Re: Invest total now or Euro cost average with lump sum?

Postby Aptenodytes » Sun Feb 03, 2013 6:26 am

After any big life change, much less multiple, you should revisit your AA to see if you need to make adjustments. That's the first question. Figure out the right AA for you in your present circumstances.

Then move your money into it as quickly as you are able to tolerate. If you have the jitters, ECA a bit. If you are steadfast, go all in.
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Re: Invest total now or Euro cost average with lump sum?

Postby boglethat » Sun Feb 03, 2013 7:12 am

Bustoff,

So far the money is sitting in an account not earning anything. If I keep it there I assume I will eventually lose to inflation. Are you suggesting the liquidity is worth that loss and I should keep it liquid despite the long term costs? Or is there something other than the "casino" to put it where I might actually make something?
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Re: Invest total now or Euro cost average with lump sum?

Postby boglethat » Sun Feb 03, 2013 7:25 am

Aptenodytes,

I did change my AA from 90% equities/10% real estate after my husband's death to about a 60/40 equities/fixed income split.
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Re: Invest total now or Euro cost average with lump sum?

Postby Aptenodytes » Sun Feb 03, 2013 9:23 am

boglethat wrote:Aptenodytes,

I did change my AA from 90% equities/10% real estate after my husband's death to about a 60/40 equities/fixed income split.

So if you are happy with the new AA and happy with the your emergency fund, invest as quickly as you can stomach. Note that the way you accumulated so far-- what you call dollar cost averaging -- would be the equivalent of investing the entire insurance proceeds all at once.

Everyone's stomach is different so you have to make this call. Some go all in, some over six months, some use more nuanced schemes. You need to find the approach that strikes the best balance for you between getting your money working according to your plan, and guarding against second-guessing regret.
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Re: Invest total now or Euro cost average with lump sum?

Postby Bustoff » Sun Feb 03, 2013 9:36 am

“There are two times in a man's life when he should not speculate: when he can't afford it, and when he can.” | ― Mark Twain
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Re: Invest total now or Euro cost average with lump sum?

Postby boglethat » Sun Feb 03, 2013 7:30 pm

Thanks all. I did happen on that thread about investing lump sums vs. DCA and found it very useful. I'll probably do a 50/50 asset allocation soon.
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