I wish the market wasn't so high! Hold out for a fall?

[longview]

Now is the time for me to invest my windfall as scheduled, at the same time as people posting "mom and pop run over by the bulls" and the like. Why must it be at an all-time high now? I really feel like waiting for a "really bad day" -- so I thought I'd post for you guys to talk me out of it. Because I know that bad day may not come until after a long run-up.

At least I feel good about more INTL exposure, since they're on sale now.

The only thing that makes me feel better is that we're only around the 2000 high, in real terms.

So, obviously, I shouldn't let being at the high stop me from investing? Even though that puts me with all the sheep?

Sorry, had to complain to somebody, and nobody else would understand.

[Novine]

No one is forcing you to invest your windfall in one lump sum. If it takes spreading it out over time to get you to do it, that's better than sitting on the sidelines paralyzed but what may or may not happen.

[nimo956]

It's only high relative to what it has been in the PAST. That doesn't say anything about what will happen in the future. There isn't some artificial barrier preventing stocks from going any higher from where they are now. Do you think that this is as high as the stock market will get for the next 40 years? If so, why even hold any stocks at all now?

Edit: Of course, there is always the possibility that stocks could stay down for extended periods of time (like decades). That is why it's important to diversity into other major asset classes like bonds.

[DRILLINDK]

Like the others stated, don't invest everything at once. I would drip the windfall over a period of 2-3 years and maintain the cash in short term CD or high yield accounts.

[pingo]

Starting out with Asset Allocation and desperately need help <--90% cash & DCA vs Lump Sum is discussed.

[tc101]

From the wiki:

"For a completely rational investor, lump sum investing will always produce a higher expected return, because it immediately moves your funds from asset classes with lower expected returns to ones with higher expected returns. Note that higher expected returns do not guarantee that your actual returns will be higher. According to an investopedia article, [6] studies indicate that lump sum investing has produced higher returns 66% of the time."

"Some investors have the goal, not of maximizing their expected returns, but of minimizing their potential regret. For those investors, dollar cost averaging is superior because it reduces the chances of investing just prior to a market drop. If you instead decide to invest 1/6th of the money each month for 6 months, you will reduce the chance of buying just before a crash. Instead, as the price fluctuates each month, you will buy more shares when the price is low and less when it is high. "

http://www.bogleheads.org/wiki/Lump_sum ... s_lump_sum

[tc101]

I just posted what the wiki says about the behaviour of the "completely rational investor". I am about to get a lump sum from the sale of a house. I will probably DCA.

[Scooter57]

I also advise putting in small amounts each month over a 2-3 year period. That's what I'm doing with my inheritance and it lets me sleep easy at night.

The money for immediate investment is in the Vanguard Money Market fund, some is in a bank money market fund that pays 1%, the rest in CDs at various credit unions ranging from 6 months to 5 years in maturity.

[BigFoot48]

Now is the time for me to invest my windfall as scheduled, at the same time as people posting "mom and pop run over by the bulls" and the like. Why must it be at an all-time high now? I really feel like waiting for a "really bad day" -- so I thought I'd post for you guys to talk me out of it. Because I know that bad day may not come until after a long run-up.

How did you finally decide to invest your $25M windfall? Is this lumpsum time or just one of the DCA times? If the latter, I would just stick with your schedule. Original discussion: viewtopic.php?f=1&t=102874&p=1565162#p1565162

[YttriumNitrate]

deleted.

[beachplum]

What worked best for me was taking my windfall (investing the portion allocated to stocks/bonds) and putting it all in over a month's time. This was in november of 2011. the market has gone up considerably since then, and I would not have gained what I did if I had taken 2 to 3 years time to buy.

[Grt2bOutdoors]

Now is the time for me to invest my windfall as scheduled, at the same time as people posting "mom and pop run over by the bulls" and the like. Why must it be at an all-time high now? I really feel like waiting for a "really bad day" -- so I thought I'd post for you guys to talk me out of it. Because I know that bad day may not come until after a long run-up.

At least I feel good about more INTL exposure, since they're on sale now.

The only thing that makes me feel better is that we're only around the 2000 high, in real terms.

So, obviously, I shouldn't let being at the high stop me from investing? Even though that puts me with all the sheep?

Sorry, had to complain to somebody, and nobody else would understand.

I like International too, but that doesn't mean today's sale price can't go lower in the future. In other words, "don't feel good", don't feel anything, investing should become unemotional.

In your position, doing nothing would cost you nothing. We are talking about a substantial amount of money. I would take my time and DCA it over the next 2-3 years. So you miss some potential upside - so what? What about if it went the other way - then you would have regret.
What's wrong with joining us "sheep"?

[Grt2bOutdoors]

What worked best for me was taking my windfall (investing the portion allocated to stocks/bonds) and putting it all in over a month's time. This was in november of 2011. the market has gone up considerably since then, and I would not have gained what I did if I had taken 2 to 3 years time to buy.

Would you take that same advice today, and toss it all in over the next month?

[longview]

Thanks for the words of wisdom guys. I had talked myself into thinking I'll do the "rational thing" and go lump sum. But realistically I see that I'm more prone to lament the downside than be happy about the upside, so I'm switching to DCA.

I'm thinking 2 mil/mo for a year should smooth it out enough so I don't feel I put everything "all in" right before a cliff.

For those that asked where I wound up. I'm going to hold my old positions (some tax-managed cap appreciation, etc), but the new will be 3-fund portfolio with some held back for "potential aggressive investment later":

- 25% TSM
- 25% Total INTL (Although this may drop to 20%, with TSM to 30%, I go back and forth)
- 50% tax-exempt intermediate
- Above numbers are of the 95%, with 5% held back for cash/potential private equity/potential commercial real-estate/potential renting

I'll see what kind of dividends are thrown off every year, since I will be living off it for awhile.

[beachplum]

What worked best for me was taking my windfall (investing the portion allocated to stocks/bonds) and putting it all in over a month's time. This was in november of 2011. the market has gone up considerably since then, and I would not have gained what I did if I had taken 2 to 3 years time to buy.

Would you take that same advice today, and toss it all in over the next month?

I might have done the same and I might not. However personally I wouldn't wait 2 or 3 years to have put what I had planned on into the markets. but the difference for me is that I didn't put all my windfall into the stock market/bond market. If I had a 25 million windfall today, I wouldn't put all if it into the stock/bond market either. why does this person need to do that? Or did I misread something.

[longview]

If I had a 25 million windfall today, I wouldn't put all if it into the stock/bond market either. why does this person need to do that? Or did I misread something.

But where else would you put it?

[Confused]

[Blanked for privacy]

[ofcmetz]

The past is the past. You can't buy yesterday's returns or losses. Find an asset allocation and then figure out how to get there. Either DCA or lump sum it in. That is if you do think that the assets you plan to invest in will be higher in 10, 20, or 30 years from now. Based on you comments, I think that maybe your allocation is too aggressive.

[longview]

$25 million? I'd put it in FDIC-insured savings accounts and CDs. Once I've won the game, I'm taking my cards off the table.

In a word: inflation. I know where you are coming from, but I have a long time horizon. Inflation is probably the number 1 realistic risk factor for me over the long term. I don't think the global economy is going to explode, long term, and if it does I'll have bigger problems.

[Confused]

[Blanked for privacy]

[feh]

$25 million? I'd put it in FDIC-insured savings accounts and CDs. Once I've won the game, I'm taking my cards off the table.

That's what I'd do too. Assuming the OP doesn't need/want to live like a rock star, the game has been won. No need to risk anything.

[Blueflame1979]

$25 million? I'd put it in FDIC-insured savings accounts and CDs. Once I've won the game, I'm taking my cards off the table.

That's what I'd do too. Assuming the OP doesn't need/want to live like a rock star, the game has been won. No need to risk anything.

Isnt life all about risks? All the way until the very end of the game of life? Wouldnt at least a little risk get his blood going and make him feel alive?

[Dandy]

had a minor windfall in November. Also thought about how high the market was. Decided to invest 2/3 according to target and the rest in a CD. The Cd will fund some of my withdrawals until I take SS at 70? Since then the market has had another climb. I have no regrets. My advice is don't stay on the sidelines with all of it. Put some to work now and DCA the rest over a short term -say 6 to 9 months. (or reduce debt?).

I first bought equites when the Dow was about 800 and almost got out when it reached 1200. I thought a 50% increase was surely going to mean a big correction. You really don't know what the market will do.

[longview]

I'm in my 20s. I also have a long time horizon. But $25 million is beyond where inflation is going to matter in the slightest. My spouse and I spend under $25k per year, but we'll call it that for easy math. That $25m works out to be 1,000 years of expenses. There's no way 1,000 years of expenses is going to be eroded by inflation - if it were, we'd all be doomed. If the global economy "explodes", then I'd have bigger problems to deal with, like you said. Even if I only had $2m, I'd take my ball and go home.

You should probably check the other thread for the full story. But the short version is, should you be in this situation, it probably won't be just you. There is my family/children, 4 aging parents, siblings, nieces/nephews, etc. Living in an expensive area, and to the degree I can help everyone, I'm looking at 400k-800k/yr. So it's about what kind of risk I want to take to be reasonably able to help out everyone I can.

Now, it's not "really" risk... since as you say I can always take the money off the table at a much lower level if I wanted to worry about just me. So that can function as a failsafe, should everything explode and my portfolio drops by 90%+ then I may have to really consider that.

But squirreling away that kind of windfall, just so I can be personally extra-secure in an early retirement... isn't really an option for me.

[BigFoot48]

I'm thinking you should have made your first DCA yesterday just after your post! (I bought an expensive car in February and my portfolio is already nearly back up to where it was before I made the purchase! This is fun while it lasts, which is why a good balanced, diversified portfolio is important to keep the fun from becoming grief some dark day in the future.)

For what it's worth, I think your chosen portfolio and DCA plan is "good enough" but you need to do it to get that money working for you and your family and your future.

[longview]

I'm thinking you should have made your first DCA yesterday just after your post!

I did. Thanks.

[LH]

Studies show:
DCA wins 1/3rd of the time
lump sum wins 2/3rds of the time.

DCA makes one feel better probably 99 percent of the time with large windfalls.

The thing is to just get the money in, then stay the course (easier said than done). If you lump it, or do it steadily over a year or so, no big deal.

The market is not "high" really. Or if it is, we do not know that it is. If the market doubles in the next three years, then doubles again 7 years later, this will not be a high point. If the market plummets 90 percent for 10 years, yeah, this will be the nominal high point : )

[Jazztonight]

For what it's worth, here is someone who has most of her $25M in fixed income:

"(Suze) Orman estimated her liquid net worth at about $25 million, with another $7 million worth of houses. With just $1 million of that in stocks, it means that just 4% of her liquid net worth is in the stock market."

http://articles.marketwatch.com/2007-03 ... ock-market

I pretty much agree that you have "won the game," and might consider taking much or most of it off the table. Sure, inflation is ever present, but why put 50% of your wealth in the stock market? How about 10% or 20%?

I like the concept of knowing when you have "enough." Is the reward of your estate growing to $50M worth the risk of it falling to $12.5M?

[BigFoot48]

I like the concept of knowing when you have "enough." Is the reward of your estate growing to $50M worth the risk of it falling to $12.5M?

He's only putting 50% or $12.5M of it into stock funds, so it would be a heck of a crash for the stocks to go to $0! Hence the value of a diversified stock and bond fund portfolio!

I also think Suzi has a large annual income which may encourage her to opt for less risk.

[Clearly_Irrational]

1) Don't try and time the market, it's a fools game over the long run.
2) There might be a small exception if you doing a large one time lump sum investment.

Based on my reading of the market we're approaching a turning point, probably at least a small pullback. Clues include:

1) Bollinger bands are forming a squeeze which usually pre-sages a larger move of some kind.
2) The current ascending triangle breakout has almost completed it's predicted run.
3) RSI is pretty high
4) Slope of the 50 day moving average is slowing
5) No clear MACD signal
6) Volume has dropped off
7) Chaikin money flow is positive but dropping
8) P&F chart says triple top breakout with an objective of 1800

Barring a significant news event I would say we're looking at a short term pull back that will be a good buying point in a medium term bull run. Chances of a significant crash right now are pretty low, if you're holding out for a big drop you're going to be waiting a while.

[Clearly_Irrational]

$25 million? I'd put it in FDIC-insured savings accounts and CDs. Once I've won the game, I'm taking my cards off the table.

In a word: inflation. I know where you are coming from, but I have a long time horizon. Inflation is probably the number 1 realistic risk factor for me over the long term. I don't think the global economy is going to explode, long term, and if it does I'll have bigger problems.

I'm in my 20s. I also have a long time horizon. But $25 million is beyond where inflation is going to matter in the slightest. My spouse and I spend under $25k per year, but we'll call it that for easy math. That $25m works out to be 1,000 years of expenses. There's no way 1,000 years of expenses is going to be eroded by inflation - if it were, we'd all be doomed. If the global economy "explodes", then I'd have bigger problems to deal with, like you said. Even if I only had $2m, I'd take my ball and go home.

At least put it in TIPS, sure they don't make much right now but they do keep up with inflation for the most part.

[YttriumNitrate]

deleted.

[Scooter57]

Tips are not recommended for new money now as they are locking in a real negative return.

[wshang]

You could buy enough slightly out of the market call options on the SPX to cover your upside and put the rest into short term treasuries. If you were wrong, you've captured the upside of the market. If the market tanks, you lost the SPX call premiums, but preserved the majority of your investment and buy in when the options expire. Have it both ways.

Of course, if you don't understand or care to learn about options, ignore this advice. (Basically what Prof Zvi Bodie says)

[Bacchus01]

If I had a 25 million windfall today, I wouldn't put all if it into the stock/bond market either. why does this person need to do that? Or did I misread something.

But where else would you put it?

$25 million? I'd put it in FDIC-insured savings accounts and CDs. Once I've won the game, I'm taking my cards off the table.

And I'd take the opposite approach. I'd take the amount I "need" and to live happily ever after (which is about $10M) and put it in a modest asset allocation, say 50/50 equity/bond.

I'd take the rest and invest 100% in equities with slant towards international, emerging, small cap stocks.

Why not go ahead and be aggressive with money you don't really need?

[Clearly_Irrational]

Tips are not recommended for new money now as they are locking in a real negative return.

Yes, but it's a higher negative return than you get from a savings account.

[Clearly_Irrational]

You could buy enough slightly out of the market call options on the SPX to cover your upside and put the rest into short term treasuries. If you were wrong, you've captured the upside of the market. If the market tanks, you lost the SPX call premiums, but preserved the majority of your investment and buy in when the options expire. Have it both ways.

Of course, if you don't understand or care to learn about options, ignore this advice. (Basically what Prof Zvi Bodie says)

I think I'd be tempted to do it the other way around. Go fully invested but buy some put options as one time insurance to limit your downside if you just happen to pick a horrible day to start. Still, there is no perfect solution so at some point you just have to pull the trigger.

[Confused]

[Blanked for privacy]

[InvestorNewb]

I went all into equities at a high in February.

Even if you DCA, it doesn't change the fact that there could be a drop after the final investment.

[drake.archer]

I went all into equities at a high in February.

Even if you DCA, it doesn't change the fact that there could be a drop after the final investment.

I've been debating whether or not to lump a large sum (for me) into an investment account, and never even thought about this point. Wow.

[Woodshark]

For what it's worth, here is someone who has most of her $25M in fixed income:

"(Suze) Orman estimated her liquid net worth at about $25 million, with another $7 million worth of houses. With just $1 million of that in stocks, it means that just 4% of her liquid net worth is in the stock market."

http://articles.marketwatch.com/2007-03 ... ock-market

For what it's worth, this article is from 2007 and is over six years old. Maybe she dodged the 2008 crash and is now back in the market.

[Clearly_Irrational]

I went all into equities at a high in February.

Even if you DCA, it doesn't change the fact that there could be a drop after the final investment.

I've been debating whether or not to lump a large sum (for me) into an investment account, and never even thought about this point. Wow.

It's pretty easy to run some simulations on your own determine which is better. Take the numbers from the 1929 Crash and try various lump sump and DCA schemes. DCA doesn't prevent you from taking losses in general, though it can prevent you from picking the absolute worst/best time to invest. Lump sum mostly wins, but the few time it's worse, it's ALOT worse. The safer course nearly always generates lower returns, DCA is safer (mitigates point in time risk) so of course it generates lower returns on average. It all comes down to whether you willing to pay the insurance premium of lower returns in order to avoid point in time risk.

[G-Money]

Tips are not recommended for new money now as they are locking in a real negative return.

Nominal bonds have the same expected negative real return. No free lunches.

[newbeginning]

Split your money into 3 pots.

1/3 Lump Sum.
1/3 DCA.
1/3 on Pull Backs.

Thats what would let me sleep at night.

[pingo]

^ Hey, not a bad idea, eh?

[travellight]

I was just about to post that, newbeginning.

[Clearly_Irrational]

Split your money into 3 pots.

1/3 Lump Sum.
1/3 DCA.
1/3 on Pull Backs.

Thats what would let me sleep at night.

Mathematically it's worse, but psychologically I think it's probably a win for most investors.

[Scott S]

I like the idea of investing 1/3 or 1/2 of a large windfall every month for a year (every month, you'd invest 1/3 or 1/2 of what remains). It gets the money into the market faster than DCA, but allows you to spread it out to get over the fear of market drops. Now I just need a cool name.

[BrianOB]

I just posted what the wiki says about the behaviour of the "completely rational investor". I am about to get a lump sum from the sale of a house. I will probably DCA.

This wiki page irritates me too. To me it seems to imply that "potential regret" has no value and the experienced cool-headed hyper-intelligent boglehead would always lump sum it, citing "Higher Expected Returns" and an Investopedia article that shows it wins 66% of the time.

I've read the strawman studies and I know it's been beaten to death in many forums so I understand how/why lump summing works over certain time periods but it seems to me to suggest that recommending LS over DCA is recommending people ignore their own risk profile and just bite the bullet. It's inappropriate advice for this forum. As Clearly_Irrational notes, when LS fails (e.g. 1929), it fails bad. 20yo and employed, lost your inheritance? Fine you'll see it out. 60yo and and living on a disability payout? Not so good. "Potential Regret" isn't always just feeling sorry for yourself - for some it's not being able to pay the bills.

[Default User BR]

As Clearly_Irrational notes, when LS fails (e.g. 1929), it fails bad. 20yo and employed, lost your inheritance? Fine you'll see it out. 60yo and and living on a disability payout? Not so good. "Potential Regret" isn't always just feeling sorry for yourself - for some it's not being able to pay the bills.

That's a pretty bad example, as DCA in 1929 wouldn't have helped much. Most of 1929 was an up market through 9/1929, when it had a mini-crash ending in 12/1929 then followed by a bit of recovery through mid-1930. The major damage was done after that in a two-year slide to the bottom. So unless your DCA was many years in scope, it's not at all clear how much benefit you would have had. You can cherry-pick any range to show a very bad result for one strategy or another.


Brian