DCA on the way out, too? Even towards a conservative AA?

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Topic Author
Cody6136
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Joined: Tue Apr 16, 2019 10:54 am

DCA on the way out, too? Even towards a conservative AA?

Post by Cody6136 » Tue Jun 04, 2019 3:04 pm

Hi all,

Still rolling things over ...old 401ks...and I wonder if anyone here can help.

I'm going from heavily equities towards bonds in my AA in tax-sheltered.

Is it better to just roll in a lump sum, or should I dollar cost average on the way out too?

The WIKI says the following:

Switching to a more conservative portfolio
Some investors who are new to a Bogleheads Investment Philosophy may find their portfolios contain too much equity. Even worse, some investors have a large portion of their net worth held in a single stock, such as through an employee purchase plan. They generally want to sell some of their equities and buy bonds. In these cases where an investor wants to move from high risk and volatility assets to lower risk and volatility assets, a lump sum transaction makes more sense than DCA. That's because lump sum both immediately moves to the expected return and volatility the investor wants, while also minimizing potential regret.

Any argument against the above? Just had a chat with a friend who is a Financial Advisor (not someone I'm paying, just a casual conversation) and he said, Always Dollar Cost in and Dollar Cost out.

I would like to be done with this, and shift this particular 401 k -- about 80k over to Vanguard.

Any argument for a dollar cost average and if so, how would I do that logistically?

What does "minimizing potential regret mean?"

MotoTrojan
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by MotoTrojan » Tue Jun 04, 2019 3:06 pm

I’d change it tomorrow. Market is near a high anyways but I’m adamantly against DCA for contributions or withdrawals.

CurlyDave
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by CurlyDave » Wed Jun 05, 2019 1:33 am

The only time I tried to DCA a lump sum in, I came to regret it, since it did less well that if I had just moved it all at once.

Since the market goes up 2/3 of the time a DCA on the way out might make more sense...

increment
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by increment » Wed Jun 05, 2019 2:24 am

A common argument for DCA is that you transact more shares at a lower price than at a higher price.

That sounds desirable for acquiring shares. It does not sound desirable for selling shares.

dbr
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by dbr » Wed Jun 05, 2019 8:39 am

The argument for DCA is that then you will feel better because you arranged things so that it is harder to regret the consequences of the market moving up or down against what you did. If you are asking then possibly doing this in steps is not a bad idea. Otherwise the issue is not different from what the discussion has always been.

There actually is a practical argument for, not exactly DCA, but doing things in separate steps. The argument is that if the process involves selling several funds in different accounts and buying other funds in different accounts, your broker may make mistakes and put things in the wrong place. If you complete one transaction at a time and verify it is what you wanted it is easier to untangle any error. We get posts here from time to time where Vanguard or someone get things mixed up and it takes a long time to get it straight.

dbr
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by dbr » Wed Jun 05, 2019 8:41 am

increment wrote:
Wed Jun 05, 2019 2:24 am
A common argument for DCA is that you transact more shares at a lower price than at a higher price.

That sounds desirable for acquiring shares. It does not sound desirable for selling shares.
Correct, but that is the original and valid idea of DCA but is not what is being discussed here. This discussion is the "lump sum vs DCA" discussion in which the term DCA is and has been universally misused.

3funder
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by 3funder » Wed Jun 05, 2019 9:20 am

What is your current equity-heavy allocation? What are you thinking for your new conservative allocation?

dbr
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by dbr » Wed Jun 05, 2019 9:25 am

Cody6136 wrote:
Tue Jun 04, 2019 3:04 pm

What does "minimizing potential regret mean?"
Regret means you invest in something and it immediately loses money and you regret that you did not wait. Actually regret can work the other way. You get out of an investment and it immediately gains money and you regret that you did not wait. The difference is that losses are supposed to be more painful than gains are pleasant.

Topic Author
Cody6136
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Joined: Tue Apr 16, 2019 10:54 am

Re: DCA on the way out, too? Even towards a conservative AA?

Post by Cody6136 » Wed Jun 05, 2019 10:17 am

increment wrote:
Wed Jun 05, 2019 2:24 am
A common argument for DCA is that you transact more shares at a lower price than at a higher price.

That sounds desirable for acquiring shares. It does not sound desirable for selling shares.
I'm going to have to ponder this one...

Topic Author
Cody6136
Posts: 263
Joined: Tue Apr 16, 2019 10:54 am

Re: DCA on the way out, too? Even towards a conservative AA?

Post by Cody6136 » Wed Jun 05, 2019 10:29 am

3funder wrote:
Wed Jun 05, 2019 9:20 am
What is your current equity-heavy allocation? What are you thinking for your new conservative allocation?

I yanked off the band aid yesterday. I'm moving into the bond index fund at Vanguard.


Since you asked, here goes, with too much information, I know. But keeping posting here is helping me maintain momentum on cleaning up my financial life.


My very first post from my original freak-out, embodied here, below. Note that I am only working on getting the tax-sheltered funds into shape at the present moment. You can see how heavily weighted I was in stocks. The long-term plan is 60 stocks/40 bonds. And that is going to be like pulling teeth. I am currently 58 years old, single, 80k salary plus 5-8k consulting.




Savings:
Short term savings fund $15,000
50 oz Krugerrand gold coins (transportable wealth and a relic of an immigrant family's approach to money).
Total:@$65,000

Taxable Investments:
T Rowe Price Mutual Funds: $460,000 as of 4/1/2019 -- 88 percent stocks
Exxon Stocks: $15,000
Dreyfus Liquid Assets $55,000
Annuities $12,000
Kemper Money Market $15,000
ATTI stock $2,000
Assorted others, stock $10,000

Total: approx. $500,000


Retirement planning:
Defined benefit program from previous job –1,000 per month at 65
Merrill Edge 401 K from previous job –$110,000 --very heavy on mutual fund stocks
*Current 403 (b) at TIAA –$65,301 .mutual fund.stocks
*Old 401k: American Funds 401k $36,000 --yes, you saw a pattern, heavy on stocks.
T Rowe Price IRA: $24,000...health care mutual funds ...stocks
HSA $12,000 ..

Total: $238,000

2k/mo Social Security – not counting on this!

Home owned outright; no credit card debt, no unsecured debt

Inheritance issues --93 year old frugal mother has about 4M in assets -- three siblings.

Any reactions/responses will help greatly. I've benefited enormously from the intelligent responses from this forum!!!

bryanm
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by bryanm » Wed Jun 05, 2019 10:37 am

Cody6136 wrote:
Wed Jun 05, 2019 10:17 am
increment wrote:
Wed Jun 05, 2019 2:24 am
A common argument for DCA is that you transact more shares at a lower price than at a higher price.

That sounds desirable for acquiring shares. It does not sound desirable for selling shares.
I'm going to have to ponder this one...
Just to wrap this up, this is not a valid point for lump sum v. DCA, because it assumes a fixed periodic investment (i.e., it assumes DCA). That is, you only "transact more shares at a lower price" if you continuously invest the same amount. If we knew ahead of time what the lower price was, and we had the funds in a lump sum, we could invest all of it then and be done.

In the lump sum v. DCA debate, the only relevant question is whether the price now is higher/lower than the average price over the DCA period. If it's higher, DCA wins. If it's lower, lump sum wins. If you believe the market tends to go up, invest now. (This appears to be what you did. I think it was the right call.)

bernoulli
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by bernoulli » Wed Jun 05, 2019 10:39 am

Has anyone studied a semi-DCA approach? For example, you decide that you will buy a set dollar amount of Vanguard S&P 500 Index Fund during the first day of the month when the Dow Jones is down? It is not as simple but it would potentially avoid at least one of the shortcomings of DCA - that being the market is up 2/3 of the time.

pkcrafter
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Re: DCA on the way out, too? Even towards a conservative AA?

Post by pkcrafter » Wed Jun 05, 2019 10:57 am

Cody6136 wrote:
Wed Jun 05, 2019 10:29 am
3funder wrote:
Wed Jun 05, 2019 9:20 am
What is your current equity-heavy allocation? What are you thinking for your new conservative allocation?

I yanked off the band aid yesterday. I'm moving into the bond index fund at Vanguard.


I think you've done the right thing. You have gone from 88% stock to 60%? You are 58? When do you plan to retire and what will be your initial withdrawal rate.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Topic Author
Cody6136
Posts: 263
Joined: Tue Apr 16, 2019 10:54 am

Re: DCA on the way out, too? Even towards a conservative AA?

Post by Cody6136 » Wed Jun 05, 2019 11:04 am

pkcrafter wrote:
Wed Jun 05, 2019 10:57 am
Cody6136 wrote:
Wed Jun 05, 2019 10:29 am
3funder wrote:
Wed Jun 05, 2019 9:20 am
What is your current equity-heavy allocation? What are you thinking for your new conservative allocation?

I yanked off the band aid yesterday. I'm moving into the bond index fund at Vanguard.


I think you've done the right thing. You have gone from 88% stock to 60%? You are 58? When do you plan to retire and what will be your initial withdrawal rate.

Paul
Thanks..I'm making progress. I'm probably not down close to 60 percent stocks yet. I am a mathematical paraplegic and haven't even run the numbers. I don't know what the withdrawal rate even MEANS! I will retire...oh....in six years? Sheesh. I have a lot of planning left to do!

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