Lump-sum capital - how to handle?

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StoneFeeler
Posts: 42
Joined: Wed Feb 20, 2019 3:23 am

Lump-sum capital - how to handle?

Post by StoneFeeler »

Hi all, As a result of the sale of real estate, I suddenly have a substantial amount of capital (over a couple of million). I am looking for thoughts on how to deploy it in financial markets - equity and fixed income. My thoughts are:

Current equity market cannot be said to be cheap (See P/E, Shiller, etc). Maybe they will run for some more time, but they are certainly not cheap. US companies' earnings growth is beginning to slow or even turn negative. Unemployment is at a low and cannot get much lower. US tax impact is likely to fade over the next 12-18 months. Recession may be around the corner? Hence, investing a lot of money in equity at the moment seems to be a bad idea.

I like the idea of shifting the AA in a range between 60 (equity) / 40 (fixed) and 40/60, depending on the market situation (just a gut feel, don't know why these two boundary limits). According to that, I should be closer to 40/60 now, although in reality I am pretty much in cash.

Given that equities are expensive with perhaps a turning point around the corner, should I now start buying equity in small installments (say every month)? Or, perhaps invest some money every time there is a 5% correction?

I know that the Bogglehead way is to fix an AA and stick to it over the long term (and not time the market). Many of my thoughts above revolve around market timing, but I need some guidance in view of the sudden availability of lump-sum capital. Any thoughts/pointers/links will be great.

Some personal info: Self 53 years, wife 48 years, kids in college (provided for), planning to work another 10+ years but cannot hope to add much to savings.

Thanks!
"Crossing the steam by feeling the stones"
AlohaJoe
Posts: 5655
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Lump-sum capital - how to handle?

Post by AlohaJoe »

If you click on the search in the top right corner and type in "invest now or wait" you'll hundreds, if not thousands, of people asking the same question.

If you don't want to lump sum invest then dollar cost average it over a few months or whatever time period you think is best.

I lump summed >$600,000 last week. I'd have no concerns doing several million.
dbr
Posts: 34186
Joined: Sun Mar 04, 2007 9:50 am

Re: Lump-sum capital - how to handle?

Post by dbr »

Holding off a few months or a year is not going to save an investor from all the crashes, declines, secular bear markets, etc. that will occur over the decades after investing.

Concern over when to invest invariably reflects lack of confidence at the higher level, namely the question of how risky a portfolio one should hold. I would hold all the cash until one has thought through how much risk one really wants to take, and then do it.

DCA is not some sort of magic injection that immunizes the portfolio against the uncertainty of investing.
Thecallofduty
Posts: 90
Joined: Sat Jan 19, 2019 10:59 am

Re: Lump-sum capital - how to handle?

Post by Thecallofduty »

https://www.bogleheads.org/wiki/Managing_a_windfall


Take your time. Read the wiki. Read some books. Then figure out how you would like to invest the large sum.
-thecallofduty
atdharris
Posts: 675
Joined: Wed Jan 02, 2019 3:18 pm

Re: Lump-sum capital - how to handle?

Post by atdharris »

There is no definite evidence that dollar cost averaging is the way to go. I say go ahead and invest. None of us know what the market will do in the future. If you try to time it, you risk missing out on gains. We may not see a massive crash with the way central banks are keeping interest rates low.
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mhadden1
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Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: Lump-sum capital - how to handle?

Post by mhadden1 »

StoneFeeler wrote: Thu Feb 21, 2019 3:32 am
I like the idea of shifting the AA in a range between 60 (equity) / 40 (fixed) and 40/60, depending on the market situation (just a gut feel, don't know why these two boundary limits).
I would not suggest market timing, especially the gut-following variation.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.
TXGator
Posts: 70
Joined: Mon Sep 26, 2016 1:38 pm

Re: Lump-sum capital - how to handle?

Post by TXGator »

My plan for a future lump sum is to invest into my most conservation allocation that I would be content with long term (50/50). If the markets crash I plan to over allocate back into equities (75/25). If I get timid to pull the trigger then 50/50 takes care of me no matter what.
DB2
Posts: 935
Joined: Thu Jan 17, 2019 10:07 pm

Re: Lump-sum capital - how to handle?

Post by DB2 »

StoneFeeler wrote: Thu Feb 21, 2019 3:32 am Hi all, As a result of the sale of real estate, I suddenly have a substantial amount of capital (over a couple of million). I am looking for thoughts on how to deploy it in financial markets - equity and fixed income. My thoughts are:

Current equity market cannot be said to be cheap (See P/E, Shiller, etc). Maybe they will run for some more time, but they are certainly not cheap. US companies' earnings growth is beginning to slow or even turn negative. Unemployment is at a low and cannot get much lower. US tax impact is likely to fade over the next 12-18 months. Recession may be around the corner? Hence, investing a lot of money in equity at the moment seems to be a bad idea.

I like the idea of shifting the AA in a range between 60 (equity) / 40 (fixed) and 40/60, depending on the market situation (just a gut feel, don't know why these two boundary limits). According to that, I should be closer to 40/60 now, although in reality I am pretty much in cash.

Given that equities are expensive with perhaps a turning point around the corner, should I now start buying equity in small installments (say every month)? Or, perhaps invest some money every time there is a 5% correction?

I know that the Bogglehead way is to fix an AA and stick to it over the long term (and not time the market). Many of my thoughts above revolve around market timing, but I need some guidance in view of the sudden availability of lump-sum capital. Any thoughts/pointers/links will be great.

Some personal info: Self 53 years, wife 48 years, kids in college (provided for), planning to work another 10+ years but cannot hope to add much to savings.

Thanks!
Recent economic data is not looking great and we are nearing the end of a long business cycle. The stock market will be in for a strong correction soon as well. I would wait and put it in something secure for now. Vanguard PMM is 2.5%.
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