Buy now or wait?

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breadman
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Buy now or wait?

Post by breadman »

I recently moved away from my Merrill Lynch broker. There were a ton of what I now, I recently became a novice Boglehead, consider bad investments. Some of the mutual funds had a 5% front end load and an ER of on average 2%. I have sold all of these though I still have some with lower expenses to get rid of. Anyway, this leaves me with a lot of cash. I have been reading that the stock market is now high and that interest rates are soon sure to rise. I have all this cash. Is now the time to buy Vanguard stock and bond index funds or should I wait? I read somewhere that Bogle says it is now time to hold onto some cash. I plan on a 30/70 asset allocation when all is said and done.
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nedsaid
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Re: Buy now or wait?

Post by nedsaid »

My understanding of the research is that you are better off to put it all in at once. But from the standpoint of investor psychology, it might be better to dollar cost average the money in over time. Imagine the buyer's remorse you would experience if the market experienced a large drop just after you bought in!! It is up to you.

If all you are doing is replacing the expensive Merrill Lynch funds with the cheap Vanguard funds, your position is unchanged. You are doing the same thing as before but at much less expense. I think I would put it all in at once particularly if your asset allocation is a conservative 30/70.
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retiredjg
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Re: Buy now or wait?

Post by retiredjg »

You were already in the market while the market was high. This is nothing other than a sideways move in a high market into different funds.
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kenyan
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Re: Buy now or wait?

Post by kenyan »

Buy now. From a expected earnings standpoint, you're losing money every day you're not in. Ignore the drivel in the news - all you're doing is maintaining what your previous investments were.
Retirement investing is a marathon.
Grt2bOutdoors
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Re: Buy now or wait?

Post by Grt2bOutdoors »

If you do not need the assets for more than 5 years, buy now. If you need the assets in less than 5 years, your allocation to equities should be zero.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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whatusername?
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Re: Buy now or wait?

Post by whatusername? »

The above posters are right on simply moving your positions sideways by investing the funds now. You took them out at this price, and holding the cash would just be trying to time the market based on your rationale. You may get lucky, but I'm guessing that's not in your IPS.
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Meg77
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Re: Buy now or wait?

Post by Meg77 »

Just dump everything into your target AA mix. If stocks tank you'll sell bonds to buy more. If bonds dip when rates rise you'll sell stocks to even things out. Rebalancing according to your target AA ensures you buy low and sell high over time. But staying in 100% cash is just a sure way to have your portfolio eaten up by inflation. Sure you'll feel smart if the market tanks next month and you stayed out, but how will you feel if the rally continues for another year or two? When will you get in?

If you really can't pull the trigger all at once then at least commit to putting X amount in each month until it's all invested over, say, 6 months.
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ShiftF5
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Re: Buy now or wait?

Post by ShiftF5 »

retiredjg wrote:You were already in the market while the market was high. This is nothing other than a sideways move in a high market into different funds.
Great point.

Sometimes I find myself playing mental accounting tricks.
leonard
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Re: Buy now or wait?

Post by leonard »

Pick a conservative AA and buy it now. Trying to time the market is a waste of time. If you are hesitant to buy the AA you would like, it's too aggressive. Add bonds until the portfolio is low enough risk that you feel you can buy the whole thing at once.

Some will recommend dollar cost averaging. However, if this is taxable, who wants to track the cost basis of 36 buys (or whatever the number ends up being) over a period of time? Buy it in a lump sum. Keep it simple.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
sawhorse
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Re: Buy now or wait?

Post by sawhorse »

leonard wrote:Pick a conservative AA and buy it now. Trying to time the market is a waste of time. If you are hesitant to buy the AA you would like, it's too aggressive. Add bonds until the portfolio is low enough risk that you feel you can buy the whole thing at once.

Some will recommend dollar cost averaging. However, if this is taxable, who wants to track the cost basis of 36 buys (or whatever the number ends up being) over a period of time? Buy it in a lump sum. Keep it simple.
There's a problem with taxable accounts in that you're sort of locked into the allocation for a year. If you want to change the allocation, you have to sell some of one and move it to the other, incurring a short term capital gain if you have a net positive earning.

I recommend dollar cost averaging as a compromise. Vanguard's website lets you see the cost basis easily so you don't have to keep track of each individual buy. Then if you want to change allocations, you can steer your asset allocation through placement of future contributions.

Depending on how much you have, you may need to do this through ETFs rather than mutual funds if you can't meet the minimum initial balance for each mutual fund.
leonard
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Re: Buy now or wait?

Post by leonard »

sawhorse wrote:
leonard wrote:Pick a conservative AA and buy it now. Trying to time the market is a waste of time. If you are hesitant to buy the AA you would like, it's too aggressive. Add bonds until the portfolio is low enough risk that you feel you can buy the whole thing at once.

Some will recommend dollar cost averaging. However, if this is taxable, who wants to track the cost basis of 36 buys (or whatever the number ends up being) over a period of time? Buy it in a lump sum. Keep it simple.
There's a problem with taxable accounts in that you're sort of locked into the allocation for a year. If you want to change the allocation, you have to sell some of one and move it to the other, incurring a short term capital gain if you have a net positive earning.

I recommend dollar cost averaging as a compromise. Vanguard's website lets you see the cost basis easily so you don't have to keep track of each individual buy. Then if you want to change allocations, you can steer your asset allocation through placement of future contributions.

Depending on how much you have, you may need to do this through ETFs rather than mutual funds if you can't meet the minimum initial balance for each mutual fund.
Being "locked in" for a year isn't really a big deal. Many find it perfectly reasonable to rebalance 1 time per year.

As for cost basis, fewer transacitons few opportunities for error. VG should keep track of the basis - but I have had custodians lose track of that. So, 1 cost basis is much less likely to be handled incorrectly than 12.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
livesoft
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Re: Buy now or wait?

Post by livesoft »

The forum is replete with threads that have "Invest now or wait?" as the theme. Just put those words up there in the upper right where it says "Google…" now and press the <enter> button or click on the "Search" button there. Have fun reading! Hint: It is almost always at a near time market high that these kinds of threads get started. It happens mind-numbingly often.
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dc81584
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Re: Buy now or wait?

Post by dc81584 »

If your target AA is 30/70, just dump it all in now. No need to worry, in my opinion. Also, I agree with the individual who said that it is just a lateral move. If you're already playing with the house's money (I assume you are), then that's one more reason not to worry about investing it all at once.
Last edited by dc81584 on Fri Apr 10, 2015 6:02 pm, edited 1 time in total.
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Watty
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Re: Buy now or wait?

Post by Watty »

Assuming that your asset allocation was correct then you could just put it into low cost versions of what it was in before and you would not have to worry about making a mistake with market timing. It might go up or down but there is no way to really forecast that.
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