Can’t pull the trigger

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Boatguy
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Can’t pull the trigger

Post by Boatguy » Sat Sep 14, 2019 7:31 pm

In a previous post, I asked the community if I was maxing out all of my pretax space. I’m 66, still working (I like my job), and have been maxing out my 401k for years, including a spillover that I roll into a Roth IRA. The answer I got was “yes”.

My problem was that my wife and I each have pretax IRAs ($200k+/ea) that were in the way of doing Backdoor Roth IRAs. My current employer’s plan does not allow IRAs to be rolled into it, and my previous employer’s plan was the same.... until last month. (For any previous GE employees out there, they just changed their plan and allow IRA rollovers.)

Here’s my irrational issue: I liquidated $100k of Contra fund and $100k of Vanguard Target 2020 (both old purchases that each blossomed over time) in order to roll those funds into my old 401k. I have it sitting in cash in my old 401k and can’t force myself to just throw it all into a Target 2020 Fund (low expense BlackRock fund) and not worry about it again. I had it all “in the market” before, but now I have cold feet. I’m a big “stay the course” kind of guy, but I’m having trouble shaking the feeling that I should wait for the proverbial dip before I go all in again. For reference, this is about 12% of our pretax savings, and most of that is in Vanguard 2020.

Should I just go for it? Thanks in advance for your opinions.

tibbitts
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Re: Can’t pull the trigger

Post by tibbitts » Sat Sep 14, 2019 7:42 pm

Boatguy wrote:
Sat Sep 14, 2019 7:31 pm
In a previous post, I asked the community if I was maxing out all of my pretax space. I’m 66, still working (I like my job), and have been maxing out my 401k for years, including a spillover that I roll into a Roth IRA. The answer I got was “yes”.

My problem was that my wife and I each have pretax IRAs ($200k+/ea) that were in the way of doing Backdoor Roth IRAs. My current employer’s plan does not allow IRAs to be rolled into it, and my previous employer’s plan was the same.... until last month. (For any previous GE employees out there, they just changed their plan and allow IRA rollovers.)

Here’s my irrational issue: I liquidated $100k of Contra fund and $100k of Vanguard Target 2020 (both old purchases that each blossomed over time) in order to roll those funds into my old 401k. I have it sitting in cash in my old 401k and can’t force myself to just throw it all into a Target 2020 Fund (low expense BlackRock fund) and not worry about it again. I had it all “in the market” before, but now I have cold feet. I’m a big “stay the course” kind of guy, but I’m having trouble shaking the feeling that I should wait for the proverbial dip before I go all in again. For reference, this is about 12% of our pretax savings, and most of that is in Vanguard 2020.

Should I just go for it? Thanks in advance for your opinions.
This won't help you, but for those contemplating this in the future, you may want to hedge against upward market movement. Rollovers could take weeks or months. You're absolutely correct that years of patient (though forced DCAing) can be undone with one unlucky market movement. Or you could win big- it's gambling. The odds are that if you are 66 and in the position of needing to do backdoor Roths, you're also in a position to hedge using other investments you already have.

illumination
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Re: Can’t pull the trigger

Post by illumination » Sat Sep 14, 2019 7:46 pm

What about just splitting the difference and put in like $5,000 a month until it's all in there? If a big movement downward happens, you increase the amount.

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RickBoglehead
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Re: Can’t pull the trigger

Post by RickBoglehead » Sat Sep 14, 2019 7:50 pm

illumination wrote:
Sat Sep 14, 2019 7:46 pm
What about just splitting the difference and put in like $5,000 a month until it's all in there? If a big movement downward happens, you increase the amount.
DCA loses to lump sum.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Boatguy
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Re: Can’t pull the trigger

Post by Boatguy » Sat Sep 14, 2019 9:26 pm

Thanks for the responses. I know that lump sum beats DCA, but if you look at the subject of my post — therein lies the problem.

I’m going to move 10% into the target fund on Monday.

Tracker968
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Re: Can’t pull the trigger

Post by Tracker968 » Sat Sep 14, 2019 9:37 pm

I just went through a similar thing. I'm just starting my retirement. Had 60% in cash for a few weeks. Couldn't get myself to commit to bond and equity funds. Finally decided to just do it. Hope it works out ok.

Topic Author
Boatguy
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Re: Can’t pull the trigger

Post by Boatguy » Sat Sep 14, 2019 9:47 pm

Good for you! You have the courage that I’m struggling to find, but I’m determined to start moving in the right direction again.

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Eagle33
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Re: Can’t pull the trigger

Post by Eagle33 » Sat Sep 14, 2019 11:24 pm

There is no perfect decision as there is no perfect AA or perfect portfolio investment. You only know the results after the fact.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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dogagility
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Re: Can’t pull the trigger

Post by dogagility » Sun Sep 15, 2019 5:21 am

Boatguy wrote:
Sat Sep 14, 2019 7:31 pm
Should I just go for it?
Yes. If you can't just go for it, then change your overall asset allocation and go for it.
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

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RickBoglehead
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Re: Can’t pull the trigger

Post by RickBoglehead » Sun Sep 15, 2019 5:41 am

Boatguy wrote:
Sat Sep 14, 2019 9:26 pm
Thanks for the responses. I know that lump sum beats DCA, but if you look at the subject of my post — therein lies the problem.

I’m going to move 10% into the target fund on Monday.
So if you know lump sum wins (fact), and you know irrational to not put the money back in, what knowledge are you looking for?

Since you're now starting DCA, seems you are taking action but along the less advantageous route, DCA.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

illumination
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Re: Can’t pull the trigger

Post by illumination » Sun Sep 15, 2019 11:18 am

RickBoglehead wrote:
Sat Sep 14, 2019 7:50 pm
illumination wrote:
Sat Sep 14, 2019 7:46 pm
What about just splitting the difference and put in like $5,000 a month until it's all in there? If a big movement downward happens, you increase the amount.
DCA loses to lump sum.
Well I'm not touting the superiority of DCA over lump sum, only proposing a solution between two extremes.

Ultimately, the goal is time in the markets, if DCA means it gets in there faster than sitting on the sidelines for extended periods of time, DCA seems like a good middle ground for the OP.

Also, while the odds are stacked in lump sums favor, it's not 100% certainty. Something like 1 out of 3 and DCA wins. I have been in a situation with a really large lump sum and DCA greatly worked in my particular case. But I still understand why lump sum is touted.

But I have to say, I'll see bogleheads say something like your bond allocation should always be Treasury bills because they are safer than AAA corporate bonds, yet the default rate on AAA corporate bonds is 0.0%. And you should have an umbrella policy for $10 million. But lump sum is always a sure thing and you should bet your life savings on it.

I feel like the 1 in 3 chance lump sum underperforms is a little too quickly dismissed to the point it's like it doesn't exist. 1 in 3 when you're talking about your life savings is not trivial.

For the record, I'm not making a case for DCA, I think most of the time, lump sum is the better option.

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Wiggums
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Re: Can’t pull the trigger

Post by Wiggums » Sun Sep 15, 2019 11:26 am

I’m just glad that you are starting to move the money back into the market.

When you exchange funds, you should invest right away. Time in the market is your friend.

Good luck to you...

Topic Author
Boatguy
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Re: Can’t pull the trigger

Post by Boatguy » Sun Sep 15, 2019 2:32 pm

Thanks to all for your replies. I’m going to split the difference and move 50% back in tomorrow and then measure my personal “pucker factor” over the coming days/weeks. Have no fears — once it’s in, it’s not coming back out.

make_a_better_world
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Re: Can’t pull the trigger

Post by make_a_better_world » Sun Sep 15, 2019 4:25 pm

You could look at this situation the same as having a windfall, which there are many discussions on if you're interested. Many on this forum mention that lump sum statistically beats DCA 2/3 of the time. I linked the actual study. https://personal.vanguard.com/pdf/ISGDCA.pdf

What is often not mentioned:
The difference between the 2 strategies is about 2% statistically,
What was only compared was investing everything at once versus over 12 months and all years from 1926 to 2015 are treated the same,
There are other analyses showing that in periods where the market's valuation is high (defined by CAPE ratios to prior earnings) it's closer to a 60/40 split for the winner between the two strategies and losses are greater in the lump sum group when the market does go south.

I bring this up because the main issue I see here is the time horizon, which likely influences your risk tolerance. I looked at your other post and see you've already retired. If you have a long time horizon of keeping this money in, I'd have no reluctance on sticking it all back in and forgetting about it. That may be the case since you're cash heavy. If your risk tolerance is low, however, I do not see any issue with DCA and it might be more important to prevent losses than chase gains. I think most of us can agree while the long term outlook is great, the next 2 years is anyone's guess. I would not wait for a big dip to time the market. I'm only speaking of risk.

delamer
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Re: Can’t pull the trigger

Post by delamer » Sun Sep 15, 2019 4:27 pm

RickBoglehead wrote:
Sat Sep 14, 2019 7:50 pm
illumination wrote:
Sat Sep 14, 2019 7:46 pm
What about just splitting the difference and put in like $5,000 a month until it's all in there? If a big movement downward happens, you increase the amount.
DCA loses to lump sum.
But DCA beats cash, when paralysis is the issue.

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RickBoglehead
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Re: Can’t pull the trigger

Post by RickBoglehead » Sun Sep 15, 2019 4:42 pm

Boatguy wrote:
Sun Sep 15, 2019 2:32 pm
Thanks to all for your replies. I’m going to split the difference and move 50% back in tomorrow and then measure my personal “pucker factor” over the coming days/weeks. Have no fears — once it’s in, it’s not coming back out.
Please, do not post the measurement... :P
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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