New Cash - dollar-cost averaging in?

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fazu
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New Cash - dollar-cost averaging in?

Post by fazu » Tue Dec 05, 2017 12:50 am

Hi All, [Edited]

This is my first post. This site has been great to lurk on. :)

My question is this: I recently was able to sell (diversify) out of a big stock position in my company and now I'm thinking about how to put the money to work in my portfolio. I'm currently in the process of moving my stock positions into index funds with Vanguard and I currently own a Vanguard bond fund. My big current concern is that the market looks pretty expensive right now, so I don't want to just allocate the capital and invest it all immediately. Part of my interest in being conservative at the moment is that I am seriously considering starting a new business and going without any salary for a while (I have plenty of money to do this and I'm comfortable with managing the 'living expense burn"). So, I'm thinking about either a plan to invest it over the next year in equal monthly chunks or potentially just sitting on the sidelines and collecting some interest and waiting for a cheaper entry point; simultaneously, I'm thinking I want to dial down risk in case I end up without income for much longer than I anticipate initially. I'm not a big fan of market timing, but the current PE ratios seem to make it an obviously bad time to invest. Oh, final point: the cash represents probably 50% of my net worth, so I'm a bit cautious (vs. how I might feel if I was just dropping in an additional 5% or something).

Thanks all!

Fazu
Last edited by fazu on Wed Dec 06, 2017 12:41 am, edited 1 time in total.

RRAAYY3
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Re: New Cash - dollar-cost averaging in?

Post by RRAAYY3 » Tue Dec 05, 2017 8:06 am

I posted something similar awhile ago

Feared the peak / inevitable correction ... one day I dumped a lump sum to get the Admiral shares at Vanguard then DCA’d into that fund at least once per month after

When values got uncomfortable, I dumped another lump sum into total international. Now I dollar cost average into whatever fund needs the boost at the end of the month.

For me, the lump sum + DCA was the way to go. Short version: don’t wait. The market is up nearly 10% since I feared the “inevitable correction”

Lots of forcasts are calling for a mild pullback followed by continued bull run into 2019. Dive in with the lowest cost funds you can and if it makes you feel better dollar cost into that purchase. Works for me - but I’m also disciplined enough to invest it manually (you can set up auto invest as well)

livesoft
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Re: New Cash - dollar-cost averaging in?

Post by livesoft » Tue Dec 05, 2017 8:34 am

This is a frequently asked question: Invest Now or Wait?
so one can search the forum and see all the responses.

I would suggest investing half now and then the remaining half over the next 10 months in chunks of 5% of the total (or 10% of the remaining). But if there is a market drop at any time, then invest more at that time. The problem is deciding what a market drop is. For example, if you are going to wait for a 20% drop, then you might be waiting 10 years. Instead, I think you should invest an extra amount on a 1% or 2% or more drop that happens in one day. Smaller drops can happen more often. For example, last Friday some things dropped intermittently more than 3%. So invest an extra 5% anytime a small drop in one day happens. That way, you will finish your DCA schedule in less than 10 months. For example, if there are 5 drops, you will have invested an extra 5 times and finish 5 months early.

Whatever you decide to do: Please write it down and post it in this thread because by making it public you are more likely to follow it.

A funny story: In early 2016, someone asked the same question and said they were going to wait for a drop. The funny part was that there was just a drop ON THE DAY he asked his question that left the market more than 10% off its highs. So when I see people say they are going to wait, they just keep waiting and keep waiting and keep waiting no matter what the drop is. This is understandable because they fear losses. Well, there is no way not to lose some money temporarily, so you might as well get it over with.
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retiredjg
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Re: New Cash - dollar-cost averaging in?

Post by retiredjg » Tue Dec 05, 2017 8:37 am

fazu wrote:
Tue Dec 05, 2017 12:50 am
Hi All,

This is my first post. This site has been great to lurk on. :)

My question is this: I recently was able to sell (diversify) out of a big stock position in my company and now I'm thinking about how to put the money to work in my portfolio. My big current concern is that the market looks pretty expensive right now, so I don't want to just allocate the capital and invest it all immediately. So, I'm thinking about either a plan to invest it over the next year in equal monthly chunks or potentially just sitting on the sidelines and collecting some interest and waiting for a cheaper entry point. I'm not a big fan of market timing, but the current PE ratios seem to make it an obviously bad time to invest. Oh, final point: the cash represents probably 50% of my net worth - so a 20% correction would be the ideal time to invest (you know, buy when people are selling).

Thanks all!

Fazu
Unless the company stock was a real loser, the money was in a high market and should do right back into a high market ASAP. Dollar cost averaging is appropriate for some situations, but this is not one of them. You don't lose anything by selling high and buying high.

Welcome to the forum!

beardsworth
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Re: New Cash - dollar-cost averaging in?

Post by beardsworth » Tue Dec 05, 2017 8:48 am

Fazu, welcome to the forum on your first-time post.

If you've been lurking her for a while, you will probably have seen that there is a general sentiment, in most threads on this subject, against dollar-cost averaging, and in favor of lump-sum, or some version of it.

So I'll register a dissent.

The market is setting new records weekly, sometimes daily. Price/earnings ratios in U.S. stocks are high, and a lot of the overall gain of the U.S. market is being led by a small number of stocks.

I don't think it's a time to throw lump sums at this market, and especially not lump sums representing, as in your case, 50% of entire net worth. I also don't think it's a time to throw in half of that money as a lump sum and then dollar-cost average the rest over a period of less than a year. If it were my money (and, of course, it's not), I would invest it slowly and regularly, over years, in modest amounts, with perhaps increased amounts if a major correction is obviously in progress.

Dollar-cost averaging may not achieve the best return in financial terms. But dollar-cost averaging is as much a psychological phenomenon as a financial one. Whether a lump sum was invested at a "good" price is something that becomes apparent only later, with hindsight. What rigorous DCA does guarantee is that a person got the average price over the time the money was being invested.

As has been mentioned above, this subject has been discussed on the Bogleheads forum again and again. For further reading, use the box at the top of the forum page to do searches for "dollar-cost averaging," "DCA," "lump sum," etc.

retiredjg
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Re: New Cash - dollar-cost averaging in?

Post by retiredjg » Tue Dec 05, 2017 9:03 am

The problem is that this investor has already paid the average price for stock with this money - in the company stock that was most likely DCA'd in.

Doing another DCA is like getting off the elevator at the 5th floor, going back to the ground floor, and getting on a separate elevator to go to the 10th floor. It makes no sense. (To me. :D )

If the first elevator only goes to 5, just make a sideways move and get on the elevator that goes to 10. No need to go back to the ground floor in between.

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ruralavalon
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Re: New Cash - dollar-cost averaging in?

Post by ruralavalon » Tue Dec 05, 2017 9:04 am

Welcome to the forum :) .
fazu wrote:
Tue Dec 05, 2017 12:50 am
Hi All,

This is my first post. This site has been great to lurk on. :)

My question is this: I recently was able to sell (diversify) out of a big stock position in my company and now I'm thinking about how to put the money to work in my portfolio. My big current concern is that the market looks pretty expensive right now, so I don't want to just allocate the capital and invest it all immediately. So, I'm thinking about either a plan to invest it over the next year in equal monthly chunks or potentially just sitting on the sidelines and collecting some interest and waiting for a cheaper entry point. I'm not a big fan of market timing, but the current PE ratios seem to make it an obviously bad time to invest. Oh, final point: the cash represents probably 50% of my net worth - so a 20% correction would be the ideal time to invest (you know, buy when people are selling).

Thanks all!

Fazu
Sitting on the sidelines is not a good idea in my opinion. Cash is almost certain to give you a negative real return net of inflation, I think its better to invest in something with the prospect of a positive real return.

Market timing (waiting for a good time to buy) is a fool's errand. No one can successfully do that consistently. If you wait for a good day to buy, you will never know if the next day, or the next week, or the next month, or the next year might be an even better time to buy.

It was always my policy to invest whenever I had extra money available to invest.

Lump sum or in stages? There is much discussion here about the two approaches. I am in the invest it "all at once" camp. When investing a large chunk of new money, "all at once" works out better about 2/3 of the time. Please see the Vanguard paper, "Dollar-cost averaging just means taking risk later".

Wiki article, "Dollar-cost averaging". “Lump sum investing will always carries 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,[5] studies indicate that lump sum investing has produced higher returns 66% of the time”

Here is another interesting article to read -- "What if you only invested at market peaks?"

The compromise solution is to invest 50% in a lump sum now, and invest the rest in stages (for example an additional 05% on a predetermined date each month for the next 10 months). Don't needlessly agonize over when the best time may be to invest.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Da5id
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Re: New Cash - dollar-cost averaging in?

Post by Da5id » Tue Dec 05, 2017 9:09 am

fazu wrote:
Tue Dec 05, 2017 12:50 am
My question is this: I recently was able to sell (diversify) out of a big stock position in my company and now I'm thinking about how to put the money to work in my portfolio. My big current concern is that the market looks pretty expensive right now, so I don't want to just allocate the capital and invest it all immediately. So, I'm thinking about either a plan to invest it over the next year in equal monthly chunks or potentially just sitting on the sidelines and collecting some interest and waiting for a cheaper entry point. I'm not a big fan of market timing, but the current PE ratios seem to make it an obviously bad time to invest. Oh, final point: the cash represents probably 50% of my net worth - so a 20% correction would be the ideal time to invest (you know, buy when people are selling).
That is a big chunk of money. "Right" financial answer is to buy it today and be done with it. But if that would cause you to feel too upset if the 20% drop happens next week, OK, DCA it in over a set period of time. Worst choice by far is to "sit on sidelines" and wait for a better entry point. Presumably the stock market will sometime fall 20%. But that may be 5 years from now. Or, again, next week. One can't know. The current high CAPE may persist for a long time. The stock market may grow slowly without a correction that gives you an entry point. Given that you want the money in stocks, the best answer is to get it there as fast as you feel you can.

If you buy and it falls, you can at least take solace in the fact that you can tax loss harvest :)

dbr
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Re: New Cash - dollar-cost averaging in?

Post by dbr » Tue Dec 05, 2017 10:07 am

I am really curious what gives rise to the idea that DCA solves any problem in investing.*

If the issue is a behavioral one of wanting to feel better about what one has done, I think a better answer is that one is contemplating an asset allocation that is too risky. Sometimes the issue is that the investor wants to time the market. There is a standard answer for that. In the case of going from more risky to less risky assets, it would not seem there is any reason to delay.

This question is asked and discussed over and over and over as is the question that the market is too "expensive." It is the nature of a forum like this that people just ask things without bothering to read the previous posts that have been made. I used to find that annoying, but I think that was bad attitude on my part. The forum exists so people can ask questions. That doesn't mean going back and reading what has already been posted might not be helpful.

*DCA that we are talking about here has nothing to do with the original (and only) meaning of dollar cost averaging, which has to do with the difference between making periodic investments of fixed dollar amounts compared to periodic investments of fixed numbers of shares.

chevca
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Re: New Cash - dollar-cost averaging in?

Post by chevca » Tue Dec 05, 2017 10:16 am

I agree with others, this money was invested already... keep it invested.

If none of the profits from the company stock are needed for a down payment or EF or whatever, put it back in the stock market.

Da5id
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Re: New Cash - dollar-cost averaging in?

Post by Da5id » Tue Dec 05, 2017 10:16 am

dbr wrote:
Tue Dec 05, 2017 10:07 am
If the issue is a behavioral one of wanting to feel better about what one has done, I think a better answer is that one is contemplating an asset allocation that is too risky. Sometimes the issue is that the investor wants to time the market.
While it is better to just buy and be done with it, I understand the behavioral issue. If one does a very large buy and the market tanks, it perhaps causes regrets that may change future behavior. e.g. next time there is a chunk of money, the memory of the previous large paper loss may cause someone to not invest etc. If there are 3 choices:

1) lump sum purchase the risky asset
2) purchase the risky asset in chunks over a set (shortish) period of time
3) leave money on the sidelines until the market is "cheaper" then buy the risky asset

1 is clearly best. But 2 isn't bad, and if it lets someone who has a large chunk of money sitting in their money market account waiting to invest move towards their target allocation, it is surely vastly better than 3.

livesoft
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Re: New Cash - dollar-cost averaging in?

Post by livesoft » Tue Dec 05, 2017 10:18 am

Another wrinkle in this is that distributions will be made in the next couple of weeks for most of the funds that the OP might invest in.

Also: Even though the thread title has "New Cash" in it, this is not really new money. It is money that was invested relatively riskily, so that anything that it would be invested in today would be less risky than what it was invested in before.
Last edited by livesoft on Tue Dec 05, 2017 10:19 am, edited 1 time in total.
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randomizer
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Re: New Cash - dollar-cost averaging in?

Post by randomizer » Tue Dec 05, 2017 10:19 am

Put it all in and forget about it. Market timing is a fool's game.
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dbr
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Re: New Cash - dollar-cost averaging in?

Post by dbr » Tue Dec 05, 2017 10:20 am

Da5id wrote:
Tue Dec 05, 2017 10:16 am
dbr wrote:
Tue Dec 05, 2017 10:07 am
If the issue is a behavioral one of wanting to feel better about what one has done, I think a better answer is that one is contemplating an asset allocation that is too risky. Sometimes the issue is that the investor wants to time the market.
While it is better to just buy and be done with it, I understand the behavioral issue. If one does a very large buy and the market tanks, it perhaps causes regrets that may change future behavior. e.g. next time there is a chunk of money, the memory of the previous large paper loss may cause someone to not invest etc. If there are 3 choices:

1) lump sum purchase the risky asset
2) purchase the risky asset in chunks over a set (shortish) period of time
3) leave money on the sidelines until the market is "cheaper" then buy the risky asset

1 is clearly best. But 2 isn't bad, and if it lets someone who has a large chunk of money sitting in their money market account waiting to invest move towards their target allocation, it is surely vastly better than 3.
In that case no one here can tell the investor what they should do. They are going to have to search inside themselves for the answer.

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Re: New Cash - dollar-cost averaging in?

Post by Nummerkins » Tue Dec 05, 2017 10:21 am

Welcome!

Dump it all in! Don't let fear and uncertainty paralyze you. If you have a long investing horizon then it does not matter. Plus, you were already invested in the market before you sold the company stock.

If it helps, Vanguard did a study on DCA with the title "Dollar-cost averaging just means taking risk later"
https://personal.vanguard.com/pdf/s315.pdf

Da5id
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Re: New Cash - dollar-cost averaging in?

Post by Da5id » Tue Dec 05, 2017 10:23 am

dbr wrote:
Tue Dec 05, 2017 10:20 am
In that case no one here can tell the investor what they should do. They are going to have to search inside themselves for the answer.
Sure, but OP had "wait for a cheaper entry point" as an option. Encouraging them to buy all at once is the right financial choice, but if they for whatever emotional reason they can't do that encouraging them to buy over a moderately short period in chunks is also a win.

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Re: New Cash - dollar-cost averaging in?

Post by billthecat » Tue Dec 05, 2017 10:52 am

fazu wrote:
Tue Dec 05, 2017 12:50 am
Hi All,

This is my first post. This site has been great to lurk on. :)

My question is this: I recently was able to sell (diversify) out of a big stock position in my company and now I'm thinking about how to put the money to work in my portfolio. My big current concern is that the market looks pretty expensive right now, so I don't want to just allocate the capital and invest it all immediately. So, I'm thinking about either a plan to invest it over the next year in equal monthly chunks or potentially just sitting on the sidelines and collecting some interest and waiting for a cheaper entry point. I'm not a big fan of market timing, but the current PE ratios seem to make it an obviously bad time to invest. Oh, final point: the cash represents probably 50% of my net worth - so a 20% correction would be the ideal time to invest (you know, buy when people are selling).

Thanks all!

Fazu

Roughly 2/3 of the time, it's better to just dump it in. 1/3 of the time it's better to DCA in. See https://personal.vanguard.com/pdf/ISGDCA.pdf.

So there is no right answer because it depends on the future, which is unpredictable. What you do then depends on your tolerance for risk. Although in your case since it's already invested in the market, dumping it in seems like the logical choice.

I anticipate receiving lump sums over the coming years and plan to DCA in because I really want to avoid feelings of regret.
We cannot direct the winds but we can adjust our sails.

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fazu
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Re: New Cash - dollar-cost averaging in?

Post by fazu » Tue Dec 05, 2017 12:02 pm

Thanks everyone for the replies.

Normally, I would just reinvest immediately, but I've got reason right now to be more conservative that I didn't get into in my first post - I expect to leave my current job to do something new without income for a year or so; i.e. I want to reduce risk in one area so I can take more risk in another - and I think the answer to that is just a different balance of stocks and bonds rather than agonizing over the issue of timing (which I agree is just not possible).

Afty
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Re: New Cash - dollar-cost averaging in?

Post by Afty » Tue Dec 05, 2017 12:19 pm

beardsworth wrote:
Tue Dec 05, 2017 8:48 am
So I'll register a dissent.

The market is setting new records weekly, sometimes daily. Price/earnings ratios in U.S. stocks are high, and a lot of the overall gain of the U.S. market is being led by a small number of stocks.

I don't think it's a time to throw lump sums at this market, and especially not lump sums representing, as in your case, 50% of entire net worth. I also don't think it's a time to throw in half of that money as a lump sum and then dollar-cost average the rest over a period of less than a year. If it were my money (and, of course, it's not), I would invest it slowly and regularly, over years, in modest amounts, with perhaps increased amounts if a major correction is obviously in progress.
I'll dissent to your dissent. :D

About 6 months ago I had a substantial amount of cash that I needed to invest. The market was at an all time high, valuations were high, etc. I held my nose and lump summed the money in. 6 months later I'm up about 8%.

Lump sum investing wins 2/3s of the time. Why would you bet on the strategy that wins only 1/3 of the time?

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Re: New Cash - dollar-cost averaging in?

Post by Da5id » Tue Dec 05, 2017 12:27 pm

Afty wrote:
Tue Dec 05, 2017 12:19 pm
Lump sum investing wins 2/3s of the time. Why would you bet on the strategy that wins only 1/3 of the time?
Because foregone gains hurt psychologically less than actual losses :)

Anyway, OP just said there are other issues here (upcoming jobless period). That in fact changes everything. You should pick an asset allocation that is in accord with your new circumstances and get there as fast as you can. If you now need a year of cash reserves for out of work time and want the rest in stocks, do that.

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Re: New Cash - dollar-cost averaging in?

Post by JDCarpenter » Tue Dec 05, 2017 12:30 pm

fazu wrote:
Tue Dec 05, 2017 12:02 pm
Thanks everyone for the replies.

Normally, I would just reinvest immediately, but I've got reason right now to be more conservative that I didn't get into in my first post - I expect to leave my current job to do something new without income for a year or so; i.e. I want to reduce risk in one area so I can take more risk in another - and I think the answer to that is just a different balance of stocks and bonds rather than agonizing over the issue of timing (which I agree is just not possible).
This is a horse of another color. Rather than stocks/bonds, you probably should segregate into cash or cash equivalents the sum that you would need to live on "for a year or so." With respect to everything else, I'd recommend investing in your IPS allocations immediately--or, alternatively, I can see the psychology of DCA'ing per a schedule that you dedicate yourself to following, but don't hold back everything (or a single investment tranche) "because the market is too high." See this thread started just over a year ago, in which an investor went all to cash because of fear and uncertainty regarding impact of certain developments in November 2016: viewtopic.php?f=10&t=203792
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ruralavalon
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Re: New Cash - dollar-cost averaging in?

Post by ruralavalon » Tue Dec 05, 2017 12:50 pm

fazu wrote:
Tue Dec 05, 2017 12:02 pm
Thanks everyone for the replies.

Normally, I would just reinvest immediately, but I've got reason right now to be more conservative that I didn't get into in my first post - I expect to leave my current job to do something new without income for a year or so; i.e. I want to reduce risk in one area so I can take more risk in another - and I think the answer to that is just a different balance of stocks and bonds rather than agonizing over the issue of timing (which I agree is just not possible).
You might want to copy and paste this adding it into your original post, using the edit button.

Otherwise new responders will not see this important information.

. . . . . .

Based on your new information the better approach might be to hold out a sum to cover expenses for a year or so, and put it in Vanguard Prime Money Market Fund (VMMXX), or a federally insured savings account or federally insured short-term CDs. For rates see: www.bankrate.com .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

boglewill34
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Re: New Cash - dollar-cost averaging in?

Post by boglewill34 » Tue Dec 05, 2017 1:00 pm

Wouldn't lump sum into an appropriate (for the OP) asset allocation be the best answer? As was said elsewhere, I'd see this as more a rebalancing function than a new cash in situation. ymmv

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Re: New Cash - dollar-cost averaging in?

Post by chevca » Tue Dec 05, 2017 1:26 pm

fazu wrote:
Tue Dec 05, 2017 12:02 pm
Thanks everyone for the replies.

Normally, I would just reinvest immediately, but I've got reason right now to be more conservative that I didn't get into in my first post - I expect to leave my current job to do something new without income for a year or so; i.e. I want to reduce risk in one area so I can take more risk in another - and I think the answer to that is just a different balance of stocks and bonds rather than agonizing over the issue of timing (which I agree is just not possible).
Well, that would have been nice to know. :wink:

So, will you be living off this money for that year? An online savings account would work fine.

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Re: New Cash - dollar-cost averaging in?

Post by beardsworth » Tue Dec 05, 2017 1:31 pm

Afty wrote:
Tue Dec 05, 2017 12:19 pm
beardsworth wrote:
Tue Dec 05, 2017 8:48 am
So I'll register a dissent.

The market is setting new records weekly, sometimes daily. Price/earnings ratios in U.S. stocks are high, and a lot of the overall gain of the U.S. market is being led by a small number of stocks.

I don't think it's a time to throw lump sums at this market, and especially not lump sums representing, as in your case, 50% of entire net worth. I also don't think it's a time to throw in half of that money as a lump sum and then dollar-cost average the rest over a period of less than a year. If it were my money (and, of course, it's not), I would invest it slowly and regularly, over years, in modest amounts, with perhaps increased amounts if a major correction is obviously in progress.
I'll dissent to your dissent. :D

About 6 months ago I had a substantial amount of cash that I needed to invest. The market was at an all time high, valuations were high, etc. I held my nose and lump summed the money in. 6 months later I'm up about 8%.

Lump sum investing wins 2/3s of the time. Why would you bet on the strategy that wins only 1/3 of the time?
And I dissent from your dissent to my dissent. :)

Sort of. Because we actually agree on several points.

My post above already acknowledged that DCA may not lead to superior investment results. But it has a substantial chance of eliminating, or greatly reducing, the regret of loss from having lump-summed at a time which turns out not to have been a "good" time to throw great wads of money into markets. And whether something was a "good" time or a "bad" time is, as I already mentioned, only known in hindsight.

I am glad that your decision to lump sum paid off for you. There was, however, no guarantee in advance that it would do so, since markets might instead have fallen soon after the purchase. Nor is there any guarantee that the next major fall in markets will recover as quickly as they did after 2008, nor is there any guarantee that the Fed and other agencies will again come riding to the rescue of investors as they did then . . . and so on. There are also a number of things going on in the world right now, which we can't discuss in detail on this forum, that could substantially alter our previous assumptions about human economies and markets.

In addressing the OP, I was also careful to say "If it were my money . . ." My attitude on this is entirely practical. I dislike making large commitments to futures I can't see. But I had to buy my house at the price it commanded on a single day in the housing market. And I had to buy my car at the price it commanded on a single day in the car market. There is no practical way to dollar-cost average the purchase of a car or a house. It is, however, possible to buy regular amounts, over time, of mutual fund shares. So I lump-sum those purchases in life on which I can't do otherwise, and I don't lump-sum things on which there's an alternative. I may or may not get an outcome superior to those who lump-summed, but I am relieved of having to care about whether the current purchase price will turn out to have been "good" or "bad." I'm at peace with the knowledge that I'll get the average price across the period of all purchases.

beardsworth
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Re: New Cash - dollar-cost averaging in?

Post by beardsworth » Tue Dec 05, 2017 1:37 pm

JDCarpenter wrote:
Tue Dec 05, 2017 12:30 pm
fazu wrote:
Tue Dec 05, 2017 12:02 pm
Thanks everyone for the replies.

Normally, I would just reinvest immediately, but I've got reason right now to be more conservative that I didn't get into in my first post - I expect to leave my current job to do something new without income for a year or so; i.e. I want to reduce risk in one area so I can take more risk in another - and I think the answer to that is just a different balance of stocks and bonds rather than agonizing over the issue of timing (which I agree is just not possible).
This is a horse of another color.
Indeed.
chevca wrote:
Tue Dec 05, 2017 1:26 pm
fazu wrote:
Tue Dec 05, 2017 12:02 pm
Thanks everyone for the replies.

Normally, I would just reinvest immediately, but I've got reason right now to be more conservative that I didn't get into in my first post - I expect to leave my current job to do something new without income for a year or so; i.e. I want to reduce risk in one area so I can take more risk in another - and I think the answer to that is just a different balance of stocks and bonds rather than agonizing over the issue of timing (which I agree is just not possible).
Well, that would have been nice to know. :wink:
Yes it would, before all these folks spent their time on another general DCA-vs-lump debate.

H-Town
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Re: New Cash - dollar-cost averaging in?

Post by H-Town » Tue Dec 05, 2017 1:51 pm

boglewill34 wrote:
Tue Dec 05, 2017 1:00 pm
Wouldn't lump sum into an appropriate (for the OP) asset allocation be the best answer? As was said elsewhere, I'd see this as more a rebalancing function than a new cash in situation. ymmv
^ you hit the nail on the head. It's re-balancing function. OP has 50% cash allocation. He needs to figure out his appropriate AA first.

SimplicityNow
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Re: New Cash - dollar-cost averaging in?

Post by SimplicityNow » Tue Dec 05, 2017 2:47 pm

I agree that your issue is one of Asset Allocation and not how to invest this money.

If you are changing jobs or anticipating being unemployed then the question becomes how much of this money do you need for expenses?

Do you have an emergency fund set aside for this purpose.

If you have been a lurker you must have read at least a dozen threads very similar to yours. The answer remains the same.

You don't know whether the market is over valued.

You don't now whether it will go up, down or sideways.

No one else knows either, despite what they say, predict, hypothesize etc.

Set an asset allocation you can sleep well with REGARDLESS of which way the market goes. You have already changed your allocation by not investing this money. Waiting for a drop, a correction, for lower valuations, etc. is market timing. It usually does not work.

Have an emergency fund.

Invest the rest according to your asset allocation.

Lump sum, DCA, splitting the two doesn't really make much difference in the end.

If you have a long investment lifetime ahead the best time to put the money in the market was yesterday. The 2nd best time is today.

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billthecat
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Re: New Cash - dollar-cost averaging in?

Post by billthecat » Tue Dec 05, 2017 3:40 pm

Afty wrote:
Tue Dec 05, 2017 12:19 pm
beardsworth wrote:
Tue Dec 05, 2017 8:48 am
So I'll register a dissent.

The market is setting new records weekly, sometimes daily. Price/earnings ratios in U.S. stocks are high, and a lot of the overall gain of the U.S. market is being led by a small number of stocks.

I don't think it's a time to throw lump sums at this market, and especially not lump sums representing, as in your case, 50% of entire net worth. I also don't think it's a time to throw in half of that money as a lump sum and then dollar-cost average the rest over a period of less than a year. If it were my money (and, of course, it's not), I would invest it slowly and regularly, over years, in modest amounts, with perhaps increased amounts if a major correction is obviously in progress.
I'll dissent to your dissent. :D

About 6 months ago I had a substantial amount of cash that I needed to invest. The market was at an all time high, valuations were high, etc. I held my nose and lump summed the money in. 6 months later I'm up about 8%.

Lump sum investing wins 2/3s of the time. Why would you bet on the strategy that wins only 1/3 of the time?
Because DCA wins and loses by a little, but lump sum wins and loses by a lot. So it's a matter risk tolerance. Check out the Vanguard report I linked to.
We cannot direct the winds but we can adjust our sails.

dbr
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Re: New Cash - dollar-cost averaging in?

Post by dbr » Tue Dec 05, 2017 4:05 pm

billthecat wrote:
Tue Dec 05, 2017 3:40 pm


Because DCA wins and loses by a little, but lump sum wins and loses by a lot. So it's a matter risk tolerance. Check out the Vanguard report I linked to.
That is a simple reflection of the fact that being invested wins and loses by a lot and not being invested wins and loses according to what one was invested in otherwise. This could be winning and losing a little, winning and losing a lot, or winning and losing a huge amount. However, the time frame over which most people propose to DCA is short enough that the difference really comes to nothing.

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Earl Lemongrab
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Re: New Cash - dollar-cost averaging in?

Post by Earl Lemongrab » Tue Dec 05, 2017 4:50 pm

You have two questions.

Yes, the fact that you have already made the sale makes it a decent idea to review your asset allocation based on your near-term needs.

As far as the market-timing, I'll trot one of the typical counter-arguments. What if you do this DCA in all next year and the market is the same or higher at the end of period? Will you pull it out and start DCA over? If not, why not? Won't the market be at least as "expensive" as it is now?
Last edited by Earl Lemongrab on Tue Dec 05, 2017 7:53 pm, edited 1 time in total.

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billthecat
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Re: New Cash - dollar-cost averaging in?

Post by billthecat » Tue Dec 05, 2017 6:47 pm

dbr wrote:
Tue Dec 05, 2017 4:05 pm
billthecat wrote:
Tue Dec 05, 2017 3:40 pm


Because DCA wins and loses by a little, but lump sum wins and loses by a lot. So it's a matter risk tolerance. Check out the Vanguard report I linked to.
That is a simple reflection of the fact that being invested wins and loses by a lot and not being invested wins and loses according to what one was invested in otherwise. This could be winning and losing a little, winning and losing a lot, or winning and losing a huge amount. However, the time frame over which most people propose to DCA is short enough that the difference really comes to nothing.
The difference is regret. As discussed in the Vanguard report, it's not just about the numbers. Rather, if you would feel regret if you dumped it all in at once and then the market dipped, even though that may be the mathematically rational choice given the higher chance of that strategy working, then you should consider DCA'ing in (over a period of no more than 12 mos.). Avoiding regret comess at a cost, which is what the report goes through.
We cannot direct the winds but we can adjust our sails.

retiredjg
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Re: New Cash - dollar-cost averaging in?

Post by retiredjg » Tue Dec 05, 2017 7:23 pm

fazu wrote:
Tue Dec 05, 2017 12:02 pm
Normally, I would just reinvest immediately, but I've got reason right now to be more conservative that I didn't get into in my first post - I expect to leave my current job to do something new without income for a year or so; i.e. I want to reduce risk in one area so I can take more risk in another - and I think the answer to that is just a different balance of stocks and bonds rather than agonizing over the issue of timing (which I agree is just not possible).
This information pretty much makes most of the previous comments useless. You probably should not rely on them. :?

I think you should set aside enough money in cash to get through a year (or whatever) and invest the rest immediately. This is NOT "new money" and whatever you are going to invest should get into the market now, not through DCA.

If you have to set some aside to live on, just do it, but don't mess up the part you intend to reinvest. If you need to change your stock to bond ratio, do that too.

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F150HD
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Re: New Cash - dollar-cost averaging in?

Post by F150HD » Tue Dec 05, 2017 7:28 pm

fazu wrote:
Tue Dec 05, 2017 12:50 am
My question is this: I recently was able to sell (diversify) out of a big stock position in my company and now I'm thinking about how to put the money to work in my portfolio....
Worth reading....though you didn't state which funds or ETFs you were looking at.

Don't Buy a Tax Bill with a Mutual Fund
Time your year-end mutual fund purchases to avoid excess taxes.
Long is the way and hard, that out of Hell leads up to light.

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fazu
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Re: New Cash - dollar-cost averaging in?

Post by fazu » Wed Dec 06, 2017 12:43 am

ruralavalon wrote:
Tue Dec 05, 2017 12:50 pm

You might want to copy and paste this adding it into your original post, using the edit button.

Otherwise new responders will not see this important information.

. . . . . .

Based on your new information the better approach might be to hold out a sum to cover expenses for a year or so, and put it in Vanguard Prime Money Market Fund (VMMXX), or a federally insured savings account or federally insured short-term CDs. For rates see: www.bankrate.com .
Done and thanks for the feedback. :)

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fazu
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Re: New Cash - dollar-cost averaging in?

Post by fazu » Wed Dec 06, 2017 12:45 am

F150HD wrote:
Tue Dec 05, 2017 7:28 pm

Worth reading....though you didn't state which funds or ETFs you were looking at.

Don't Buy a Tax Bill with a Mutual Fund
Time your year-end mutual fund purchases to avoid excess taxes.
Thanks for pointing this out - I'm actually in the process of opening an account at Vanguard so I can get Admiral shares of the funds I'd like - as I'm working on my personal strategy, I'm leaning very heavily toward three (or four) funds. I guess I may be forced to wait until January at this point anyway.

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