1Mil$ Dollar-Cost Averaging is a strategy

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aramv
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1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 9:16 am

Hi Everybody!
I'm going to try to make this as simple as possible.

My father is getting his pension - Approx 1 Million Dollars. He just turned 70 and will need to take out, by law, RMD (Required Minimum Distribution) next year when he turns 70 1/2 yrs. He will have control over the funds via Fidelity.

I thought it would be wise to put half $500K in Fidelity ZEROSM Total Market Index Fund and do DCA. *he will take out the RMD from the $500K cash position. He also plans to use some of the funds for himself or help his children.

Question: How would you spread out $500,000 doing Dollar Cost Averaging? Would you spread it out over 1yr, 5 yrs? 10yrs?

I appreciate any and all input!

-Note: this will be our inheritance (4 children) and we will all need to abide by the same RMD according to our ages.
Last edited by aramv on Wed Sep 18, 2019 11:12 am, edited 1 time in total.

livesoft
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by livesoft » Wed Sep 18, 2019 9:19 am

I would make the DCA as short as possible, but no more than 10 months. So 50% now, and then 5% of total per month for the next 10 months UNLESS the stock market has a really bad day (RBD). If stock market has a RBD, then I would invest another 5% near the end of that day or the next day thus reducing the 10 months to 9 months total. I would do this even if there were 2 or 3 or 4 RBDS in the same month or any month while doing that schedule. That is, RBDs accelerate the DCA process to less than 10 months.

Of course, you read the yesterday's DCA thread on bogleheads.org, right?
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by Jack FFR1846 » Wed Sep 18, 2019 9:22 am

I would DCA the entire amount in the span of one day.
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lakpr
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by lakpr » Wed Sep 18, 2019 9:24 am

I would put 50:50 into FZROX and FXNAX (Fidelity Totsl US Bond index fund). Drawing the RMD solely from the bond portion of the portfolio looks great. The stock portion can be left untouched and be your (4 children's) inheritance, assuming you are ok with the possibility that when you inherit the IRA eventually, the RMDs required from the inherited IRA might push you into a higher tax bracket.
Last edited by lakpr on Wed Sep 18, 2019 9:26 am, edited 1 time in total.

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by lakpr » Wed Sep 18, 2019 9:25 am

Jack FFR1846 wrote: โ†‘
Wed Sep 18, 2019 9:22 am
I would DCA the entire amount in the span of one day.
๐Ÿ˜‚ :sharebeer:

rascott
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by rascott » Wed Sep 18, 2019 9:26 am

Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Last edited by rascott on Wed Sep 18, 2019 9:27 am, edited 1 time in total.

JakeyLee
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by JakeyLee » Wed Sep 18, 2019 9:27 am

I'm no expert in dollar cost averaging, but I'm eagerly awaiting responses by fellow Bogleheads. I do have questions though: Is this "pension" already rolled over into an IRA or some similar instrument? I'm assuming it was a lump sum that he opted to take from his employer? Does he have the option to receive monthly/annual payments instead? How safe is the aforementioned pension system? More info might help narrow down the quality responses to your query.

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by Wiggums » Wed Sep 18, 2019 9:27 am

Let me see if I understand your question. Your father has 1 million at Fidelity that is subject to RMDs at age 70.5.

He will need to withdrawal the minimum amount and pay taxes on the distribution. What he does with the distributed money, once the taxes are paid, is up to your father.

He can take out more than the minimum, but he should look at his other taxable income to see what amount makes sense.

I would reinvest they RMD money the same day it was distributed. Yes, lumpsum!!!! Lumpsum beats DCA most of the time.
Last edited by Wiggums on Wed Sep 18, 2019 9:29 am, edited 1 time in total.

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dbr » Wed Sep 18, 2019 9:28 am

Dollar cost averaging in this context is a much discussed topic. The mystery in these discussions is that people keep suggesting it when there is no rational ground to do it. I am curious if you would share why you are asking.

An observation I would make is that I think DCA comes up when in fact people are unsure about what asset allocation they really want. Asset allocation is directly about how risky their investment portfolio should be. A person who is sure of their asset allocation would have no reason to suggest DCA.

There is an argument for a person with a sudden influx of investment money to do nothing for awhile until things are figured out. But that has nothing to do with DCA.

Here are past discussions of the subject: https://www.google.com/search?sitesearc ... .org&q=dca

and here are discussions of how to handle sudden large sums: https://www.google.com/search?sitesearc ... =wiNDFALLS

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 10:20 am

livesoft wrote: โ†‘
Wed Sep 18, 2019 9:19 am
I would make the DCA as short as possible, but no more than 10 months. So 50% now, and then 5% of total per month for the next 10 months UNLESS the stock market has a really bad day (RBD). If stock market has a RBD, then I would invest another 5% near the end of that day or the next day thus reducing the 10 months to 9 months total. I would do this even if there were 2 or 3 or 4 RBDS in the same month or any month while doing that schedule. That is, RBDs accelerate the DCA process to less than 10 months.

Of course, you read the yesterday's DCA thread on bogleheads.org, right?
Interesting. I don't want to pay too much attention to the RBD of the market. I'm hoping my dad lives to see 90 years. So I want to be hands off and a bit conservative since it will be split 4 ways when he passes.

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 10:22 am

lakpr wrote: โ†‘
Wed Sep 18, 2019 9:24 am
I would put 50:50 into FZROX and FXNAX (Fidelity Totsl US Bond index fund). Drawing the RMD solely from the bond portion of the portfolio looks great. The stock portion can be left untouched and be your (4 children's) inheritance, assuming you are ok with the possibility that when you inherit the IRA eventually, the RMDs required from the inherited IRA might push you into a higher tax bracket.
Interesting approach. But how would invest? in Lum Sum or Dollar Cost Average?

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 10:25 am

rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by Longdog » Wed Sep 18, 2019 10:26 am

I think you should first determine what his overall asset allocation should be based on need, ability, and desire to take risk, then allocate all of his portfolio based on that analysis.
Steve

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by MotoTrojan » Wed Sep 18, 2019 10:29 am

aramv wrote: โ†‘
Wed Sep 18, 2019 10:22 am
lakpr wrote: โ†‘
Wed Sep 18, 2019 9:24 am
I would put 50:50 into FZROX and FXNAX (Fidelity Totsl US Bond index fund). Drawing the RMD solely from the bond portion of the portfolio looks great. The stock portion can be left untouched and be your (4 children's) inheritance, assuming you are ok with the possibility that when you inherit the IRA eventually, the RMDs required from the inherited IRA might push you into a higher tax bracket.
Interesting approach. But how would invest? in Lum Sum or Dollar Cost Average?
Lump. If he had saved in a 401k instead and now had $1M (or even $5M) after decades of saving and investment returns, would it make sense for him to go and sell all his appreciated equities and then re-deploy them over 5 years? Of course not... nobody does that. This is no different.

Pick an AA and invest it all. Every day you don't sell in a tax-advantaged account you are deciding to lump sum.

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 10:38 am

JakeyLee wrote: โ†‘
Wed Sep 18, 2019 9:27 am
I'm no expert in dollar cost averaging, but I'm eagerly awaiting responses by fellow Bogleheads. I do have questions though: Is this "pension" already rolled over into an IRA or some similar instrument? I'm assuming it was a lump sum that he opted to take from his employer? Does he have the option to receive monthly/annual payments instead? How safe is the aforementioned pension system? More info might help narrow down the quality responses to your query.
Hi Jakey, the pension has not been rolled over yet. We will be seeing a local Fidelity financial person next month. And I believe the plan is to roll over into an IRA next year when he turns 70 1/2. I spoke with Fidelity and they said my father needs to "lock in" if he wants a RMD monthly amount withdrawn or one lum sum RMD each year. I think he'd want the RMD lum sum approx 4% each year.

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dbr » Wed Sep 18, 2019 10:41 am

aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
What are you going to do when the market takes a huge drop the day after you finish putting in the money?

As much as people are discouraging you taking ten years to do this, that at least really would protect you from a market crash for a few years. But that is why the issue is not when to put the money in but rather whether to put it in. More specifically this means the issue is what is the right asset allocation. A previous poster mentioned need, ability, and willingness to take risk. I really do think stepping back and deciding how much risk to take would be a good idea.

If the allocation is going to be 75% in bonds and 25% in the market, that is a very conservative allocation and there is no reason to worry about a DCA approach. Depending on your father's objectives that could be a very reasonable asset allocation or it could be too conservative, but no one knows without thinking about what the objectives are in a way that can be related to how to invest.

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by willthrill81 » Wed Sep 18, 2019 10:44 am

The odds are 2-1 that dollar-cost averaging will be inferior to lump summing the funds.

If he absolutely feels the need to DCA, then he would be better off lump summing into a conservative AA, maybe 30/70 or 40/60, which can actually be done with a single fund like Wellesley Income or Vanguard's Life Strategy Conservative Growth fund. He can remain there as long as he wishes, or he can slowly move into an all stock fund to bring up the overall AA.
โ€œIt's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.โ€ J.R.R. Tolkien,The Lord of the Rings

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by rascott » Wed Sep 18, 2019 10:46 am

aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?

That would equate to an AA of 25/75 equities/fixed income. That alone is incredibly conservative. Why would you need to DCA into a 25/75 portfolio?

Your first post indicated you wanted a 50/50 allocation.

dbr
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dbr » Wed Sep 18, 2019 10:50 am

aramv wrote: โ†‘
Wed Sep 18, 2019 10:38 am
JakeyLee wrote: โ†‘
Wed Sep 18, 2019 9:27 am
I'm no expert in dollar cost averaging, but I'm eagerly awaiting responses by fellow Bogleheads. I do have questions though: Is this "pension" already rolled over into an IRA or some similar instrument? I'm assuming it was a lump sum that he opted to take from his employer? Does he have the option to receive monthly/annual payments instead? How safe is the aforementioned pension system? More info might help narrow down the quality responses to your query.
Hi Jakey, the pension has not been rolled over yet. We will be seeing a local Fidelity financial person next month. And I believe the plan is to roll over into an IRA next year when he turns 70 1/2. I spoke with Fidelity and they said my father needs to "lock in" if he wants a RMD monthly amount withdrawn or one lum sum RMD each year. I think he'd want the RMD lum sum approx 4% each year.
You are being asked if your father was given the choice of taking his pension as an annuity or as a lump sum. Your postings suggest the choice of an annuity was either not offered or was already decided against.

Once the money is in an IRA RMD means Required Minimum Distribution. That means what it says; you have to take it out. But it is not a prescription for what a person gets. You can take out more if you want. It would be a mistake to confuse the RMD tax formula with being some kind of annuity agreement.

I have no idea what Fidelty means by "lock in" They can agree to pay out each year's RMD in an annual amount or in monthly amounts. The "lump sum" in this context is not the lump sum in the annuity or not context. A person can also withdraw any amount from the IRA at any time if they want. Doing that after telling Fidelity you want monthly payments might confuse Fidelity though.

The RMD is not 4%. The first increment at age 70 is about 3.6% but increases each year. Here is the schedule: https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by livesoft » Wed Sep 18, 2019 11:01 am

aramv wrote: โ†‘
Wed Sep 18, 2019 10:20 am
Interesting. I don't want to pay too much attention to the RBD of the market. I'm hoping my dad lives to see 90 years. So I want to be hands off and a bit conservative since it will be split 4 ways when he passes.
Yes, it is interesting that you focussed on the RBD thing which is totally secondary to the process. Get this money invested right away especially if it will go to heirs with a long-term outlook. There is really NO NEED to be a bit conservative from your description of the goal.
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 11:04 am

dbr wrote: โ†‘
Wed Sep 18, 2019 10:41 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
What are you going to do when the market takes a huge drop the day after you finish putting in the money?

As much as people are discouraging you taking ten years to do this, that at least really would protect you from a market crash for a few years. But that is why the issue is not when to put the money in but rather whether to put it in. More specifically this means the issue is what is the right asset allocation. A previous poster mentioned need, ability, and willingness to take risk. I really do think stepping back and deciding how much risk to take would be a good idea.

If the allocation is going to be 75% in bonds and 25% in the market, that is a very conservative allocation and there is no reason to worry about a DCA approach. Depending on your father's objectives that could be a very reasonable asset allocation or it could be too conservative, but no one knows without thinking about what the objectives are in a way that can be related to how to invest.
Hi dbr,
Well, Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 11:08 am

rascott wrote: โ†‘
Wed Sep 18, 2019 10:46 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
That would equate to an AA of 25/75 equities/fixed income. That alone is incredibly conservative. Why would you need to DCA into a 25/75 portfolio?
Your first post indicated you wanted a 50/50 allocation.
Thank you for the comment.Yes It is incredibly conservative. But maybe I'm not getting it. What are the benefits of a LUM SUM if the funds will be split in 20 years of less since my dad is 70 years old. Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 11:11 am

livesoft wrote: โ†‘
Wed Sep 18, 2019 11:01 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:20 am
Interesting. I don't want to pay too much attention to the RBD of the market. I'm hoping my dad lives to see 90 years. So I want to be hands off and a bit conservative since it will be split 4 ways when he passes.
Yes, it is interesting that you focussed on the RBD thing which is totally secondary to the process. Get this money invested right away especially if it will go to heirs with a long-term outlook. There is really NO NEED to be a bit conservative from your description of the goal.
So Lum Sum into 50/50 on half of the 1Mil? and the other half in Treasuries? Maybe these details will help... Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer

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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dbr » Wed Sep 18, 2019 11:14 am

aramv wrote: โ†‘
Wed Sep 18, 2019 11:04 am
dbr wrote: โ†‘
Wed Sep 18, 2019 10:41 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
What are you going to do when the market takes a huge drop the day after you finish putting in the money?

As much as people are discouraging you taking ten years to do this, that at least really would protect you from a market crash for a few years. But that is why the issue is not when to put the money in but rather whether to put it in. More specifically this means the issue is what is the right asset allocation. A previous poster mentioned need, ability, and willingness to take risk. I really do think stepping back and deciding how much risk to take would be a good idea.

If the allocation is going to be 75% in bonds and 25% in the market, that is a very conservative allocation and there is no reason to worry about a DCA approach. Depending on your father's objectives that could be a very reasonable asset allocation or it could be too conservative, but no one knows without thinking about what the objectives are in a way that can be related to how to invest.
Hi dbr,
Well, Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
Yes. So it is clear the money was preferred to the income.

You don't say what he needs to live on, but the picture seems to be he doesn't need the pension money or the 401k money and everyone wants that to be saved for the benefit of you four heirs. So the discussion is how much risk to take vs. return in the long term interest of the four heirs.

It might be of interest to you to enter a program like FireCalc with an initial portfolio and no withdrawals, 20 year forecast, and see the kind of outcomes that have presented themselves historically at different asset allocations. The point of using this particular program is that one of the outputs is a chart of portfolio growth that you can also download. You will probably be astounded at how wide the range of results can be and the overlap for different asset allocations. In any case you may very well find the infamous 60:40 choice to look good to you, but at least everyone can ponder the options. I don't think there is a simpler way to consider what you want.

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aramv
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 11:20 am

dbr wrote: โ†‘
Wed Sep 18, 2019 11:14 am
aramv wrote: โ†‘
Wed Sep 18, 2019 11:04 am
dbr wrote: โ†‘
Wed Sep 18, 2019 10:41 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
What are you going to do when the market takes a huge drop the day after you finish putting in the money?

As much as people are discouraging you taking ten years to do this, that at least really would protect you from a market crash for a few years. But that is why the issue is not when to put the money in but rather whether to put it in. More specifically this means the issue is what is the right asset allocation. A previous poster mentioned need, ability, and willingness to take risk. I really do think stepping back and deciding how much risk to take would be a good idea.

If the allocation is going to be 75% in bonds and 25% in the market, that is a very conservative allocation and there is no reason to worry about a DCA approach. Depending on your father's objectives that could be a very reasonable asset allocation or it could be too conservative, but no one knows without thinking about what the objectives are in a way that can be related to how to invest.
Hi dbr,
Well, Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
Yes. So it is clear the money was preferred to the income.

You don't say what he needs to live on, but the picture seems to be he doesn't need the pension money or the 401k money and everyone wants that to be saved for the benefit of you four heirs. So the discussion is how much risk to take vs. return in the long term interest of the four heirs.

It might be of interest to you to enter a program like FireCalc with an initial portfolio and no withdrawals, 20 year forecast, and see the kind of outcomes that have presented themselves historically at different asset allocations. The point of using this particular program is that one of the outputs is a chart of portfolio growth that you can also download. You will probably be astounded at how wide the range of results can be and the overlap for different asset allocations. In any case you may very well find the infamous 60:40 choice to look good to you, but at least everyone can ponder the options. I don't think there is a simpler way to consider what you want.
Thank you so much. I will look into FireCalc. The 60/40 was definitely on my radar.

rascott
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by rascott » Wed Sep 18, 2019 11:37 am

aramv wrote: โ†‘
Wed Sep 18, 2019 11:08 am
rascott wrote: โ†‘
Wed Sep 18, 2019 10:46 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
That would equate to an AA of 25/75 equities/fixed income. That alone is incredibly conservative. Why would you need to DCA into a 25/75 portfolio?
Your first post indicated you wanted a 50/50 allocation.
Thank you for the comment.Yes It is incredibly conservative. But maybe I'm not getting it. What are the benefits of a LUM SUM if the funds will be split in 20 years of less since my dad is 70 years old. Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
So it sounds like you are not investing for your dad for money he will ever need, but for the heirs. So how would 4 people between age 32-45 want to invest? Certainty not 25/75, like you are talking about (I wouldn't think).


Read this on why DCA isn't great.

https://ofdollarsanddata.com/the-cost-o ... ssion=true

User avatar
Topic Author
aramv
Posts: 79
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 11:50 am

rascott wrote: โ†‘
Wed Sep 18, 2019 11:37 am
aramv wrote: โ†‘
Wed Sep 18, 2019 11:08 am
rascott wrote: โ†‘
Wed Sep 18, 2019 10:46 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
That would equate to an AA of 25/75 equities/fixed income. That alone is incredibly conservative. Why would you need to DCA into a 25/75 portfolio?
Your first post indicated you wanted a 50/50 allocation.
Thank you for the comment.Yes It is incredibly conservative. But maybe I'm not getting it. What are the benefits of a LUM SUM if the funds will be split in 20 years of less since my dad is 70 years old. Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
So it sounds like you are not investing for your dad for money he will ever need, but for the heirs. So how would 4 people between age 32-45 want to invest? Certainty not 25/75, like you are talking about (I wouldn't think).


Read this on why DCA isn't great.

https://ofdollarsanddata.com/the-cost-o ... ssion=true
Thank you, I'll check the link now. So knowing the situation with the heirs ; what would the strategy as far AA?

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Topic Author
aramv
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 12:08 pm

rascott wrote: โ†‘
Wed Sep 18, 2019 10:46 am

So it sounds like you are not investing for your dad for money he will ever need, but for the heirs. So how would 4 people between age 32-45 want to invest? Certainty not 25/75, like you are talking about (I wouldn't think).


Read this on why DCA isn't great.

https://ofdollarsanddata.com/the-cost-o ... ssion=true
Great article . Thanks!

delamer
Posts: 9484
Joined: Tue Feb 08, 2011 6:13 pm

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by delamer » Wed Sep 18, 2019 4:55 pm

aramv wrote: โ†‘
Wed Sep 18, 2019 11:50 am
rascott wrote: โ†‘
Wed Sep 18, 2019 11:37 am
aramv wrote: โ†‘
Wed Sep 18, 2019 11:08 am
rascott wrote: โ†‘
Wed Sep 18, 2019 10:46 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am


Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
That would equate to an AA of 25/75 equities/fixed income. That alone is incredibly conservative. Why would you need to DCA into a 25/75 portfolio?
Your first post indicated you wanted a 50/50 allocation.
Thank you for the comment.Yes It is incredibly conservative. But maybe I'm not getting it. What are the benefits of a LUM SUM if the funds will be split in 20 years of less since my dad is 70 years old. Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
So it sounds like you are not investing for your dad for money he will ever need, but for the heirs. So how would 4 people between age 32-45 want to invest? Certainty not 25/75, like you are talking about (I wouldn't think).


Read this on why DCA isn't great.

https://ofdollarsanddata.com/the-cost-o ... ssion=true
Thank you, I'll check the link now. So knowing the situation with the heirs ; what would the strategy as far AA?
Assuming your father is in agreement that he wants the money to be invested for the benefit of his children, that argues for a more aggressive allocation. If the average age of the kids is 38, then invest for a 38 year oldโ€™s time horizon.

Also, his allocation should be considered across both the IRA and pension money especially if it is 1) not needed to cover current expenses and 2) will all go to his kids.

Your father should consider gifting some money to his kids now, rather then them having to wait to inherit the money.

User avatar
Topic Author
aramv
Posts: 79
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Wed Sep 18, 2019 5:08 pm

[quote=delamer post_id=4755708 time=1568843715 user_id=24124

Assuming your father is in agreement that he wants the money to be invested for the benefit of his children, that argues for a more aggressive allocation. If the average age of the kids is 38, then invest for a 38 year oldโ€™s time horizon.

Also, his allocation should be considered across both the IRA and pension money especially if it is 1) not needed to cover current expenses and 2) will all go to his kids.

Your father should consider gifting some money to his kids now, rather then them having to wait to inherit the money.
[/quote]

Hi delamer,
Thank you for the comment. He is situated already with his 401K , Veterans and Social Security. I can not stress that enough. He does want to help his kids with the funds whenever we need it. That's why I was suggesting half be in Cash; where he'll take the RMD (which will likely go to his kids) and the other half invested 50/50 in stocks and bonds. I'm more leaning on either 100% invested in 60/40 Stock/Bond AA and the RMD will be taken from those funds- Or $250K in Cash (RMD will take from Cash) and $750K in 60/40 Stock Bond AA. Thoughts?

tesuzuki2002
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by tesuzuki2002 » Wed Sep 18, 2019 5:10 pm

livesoft wrote: โ†‘
Wed Sep 18, 2019 9:19 am
I would make the DCA as short as possible, but no more than 10 months. So 50% now, and then 5% of total per month for the next 10 months UNLESS the stock market has a really bad day (RBD). If stock market has a RBD, then I would invest another 5% near the end of that day or the next day thus reducing the 10 months to 9 months total. I would do this even if there were 2 or 3 or 4 RBDS in the same month or any month while doing that schedule. That is, RBDs accelerate the DCA process to less than 10 months.

Of course, you read the yesterday's DCA thread on bogleheads.org, right?
+1 +1 :sharebeer

NotWhoYouThink
Posts: 2802
Joined: Fri Dec 26, 2014 4:19 pm

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by NotWhoYouThink » Wed Sep 18, 2019 5:15 pm

aramv wrote: โ†‘
Wed Sep 18, 2019 11:04 am


Hi dbr,
Well, Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
Are you saying he will take the income he needs to supplement his veteran's benefit from the 401k, and take the pension as a lump sum? Because that sounds about backwards.

Has he already made this irrevocable decision? My choice was (is, actually) to take the pension as an annuity, because Megacorp will pay me (and spouse if I die first) more money per month than I could get taking the lump sum and buying an annuity. It's not inflation adjusted, but it's a good deal. So that plus Social Security gives me plenty to live on, and the 401K/IRA assets can be spent on fun and games, or left for our kids, or given away to the kids as we discover how much of it we won't live long enough to spend.

I really have a hard time wrapping my mind around someone with a 20+ year life expectancy taking the pension as a lump sum instead of an annuity, unless that person is pretty comfortable with investing money, choosing an asset allocation, and accepting the risks that come with being in the market. And if that person is asking his offspring from help, and offspring's first instinct is to Dollar Cost Average instead of picking an AA and jumping in, then the premise in the previous sentence has not been met.

dbr
Posts: 31230
Joined: Sun Mar 04, 2007 9:50 am

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dbr » Wed Sep 18, 2019 5:20 pm

aramv wrote: โ†‘
Wed Sep 18, 2019 5:08 pm

Thank you for the comment. He is situated already with his 401K , Veterans and Social Security. I can not stress that enough. He does want to help his kids with the funds whenever we need it. That's why I was suggesting half be in Cash; where he'll take the RMD (which will likely go to his kids) and the other half invested 50/50 in stocks and bonds. I'm more leaning on either 100% invested in 60/40 Stock/Bond AA and the RMD will be taken from those funds- Or $250K in Cash (RMD will take from Cash) and $750K in 60/40 Stock Bond AA. Thoughts?
Not delamer, but my thought is that this isn't about where you take the RMD. The RMD is just a transfer from tax deferred accounts to taxable accounts that the IRS forces on you to make sure you finally pay some tax.

What is relevant is the overall asset allocation of your investments and how much you withdraw and spend or give to someone. He can perfectly well invest everything in whatever asset allocation is appropriate and sell things to rebalance as he takes his RMDs every year.

Another point is that all of the assets really should be considered together, both the IRA and the 401k, both of which have RMD requirements anyway.

I think everyone is a little lost on why anything would be held in cash.

dbr
Posts: 31230
Joined: Sun Mar 04, 2007 9:50 am

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dbr » Wed Sep 18, 2019 5:24 pm

NotWhoYouThink wrote: โ†‘
Wed Sep 18, 2019 5:15 pm
aramv wrote: โ†‘
Wed Sep 18, 2019 11:04 am


Hi dbr,
Well, Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
Are you saying he will take the income he needs to supplement his veteran's benefit from the 401k, and take the pension as a lump sum? Because that sounds about backwards.

Has he already made this irrevocable decision? My choice was (is, actually) to take the pension as an annuity, because Megacorp will pay me (and spouse if I die first) more money per month than I could get taking the lump sum and buying an annuity. It's not inflation adjusted, but it's a good deal. So that plus Social Security gives me plenty to live on, and the 401K/IRA assets can be spent on fun and games, or left for our kids, or given away to the kids as we discover how much of it we won't live long enough to spend.

I really have a hard time wrapping my mind around someone with a 20+ year life expectancy taking the pension as a lump sum instead of an annuity, unless that person is pretty comfortable with investing money, choosing an asset allocation, and accepting the risks that come with being in the market. And if that person is asking his offspring from help, and offspring's first instinct is to Dollar Cost Average instead of picking an AA and jumping in, then the premise in the previous sentence has not been met.
This is also true. I didn't go there because I assumed the decision had been made. But if it hasn't, it should be reconsidered. If he is not spending any money from either the pension or the 401k and both are intended to go to his children, then the annuity might not be the best choice. If he is relying on the 401k for living expenses then the situation needs more thought.

smectym
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by smectym » Wed Sep 18, 2019 5:37 pm

dbr wrote: โ†‘
Wed Sep 18, 2019 9:28 am
Dollar cost averaging in this context is a much discussed topic. The mystery in these discussions is that people keep suggesting it when there is no rational ground to do it. I am curious if you would share why you are asking.

An observation I would make is that I think DCA comes up when in fact people are unsure about what asset allocation they really want. Asset allocation is directly about how risky their investment portfolio should be. A person who is sure of their asset allocation would have no reason to suggest DCA.

There is an argument for a person with a sudden influx of investment money to do nothing for awhile until things are figured out. But that has nothing to do with DCA.

Here are past discussions of the subject: https://www.google.com/search?sitesearc ... .org&q=dca

and here are discussions of how to handle sudden large sums: https://www.google.com/search?sitesearc ... =wiNDFALLS
>"The mystery in these discussions is that people keep suggesting it when there is no rational ground to do it."

Actually, "rational basis" is a pretty low bar to meet. An investor's concern that a lump sum might be badly timed is a sufficient "rational ground to do it [i.e. DCA]."

Those who criticize DCA argue that "chances are two out of three" that lump sum will do better. Well, an investor might rationally conclude, "I don't want to take that 33% chance."

An investment advisor who had initally suggested the lump sum approach might rationally propose DCA to a client when it becomes clear that the fearful client might otherwise not invest the money at all.

Investors who are talking about $1,00,000 and what to do with it are often talking about their ONLY $1 million. It's "rational" to be cautious, even if historically the statistics re outcomes tend to favor the lump-sum investor.

deikel
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by deikel » Wed Sep 18, 2019 5:40 pm

dbr wrote: โ†‘
Wed Sep 18, 2019 9:28 am
Dollar cost averaging in this context is a much discussed topic. The mystery in these discussions is that people keep suggesting it when there is no rational ground to do it. I am curious if you would share why you are asking.
Emphasis is mine....This seems a bit strong...

The one event you want to avoid is that you panic in a market downturn and fire sell your assets on the way down, then don't invest when it goes up because you feel burned and only go back in when the market is already recovered - anything that prevents you (or in the case of the OP, the father) to do so seems a pretty logical approach to investing - its quite rational...

Not investing is also a way of investing (in cash that looses value with inflation). You can also lump sum invest it in CDs, bonds and treasuries and slowly glide path to an equity allocation you feel comfortable with over time and call it a gliding investment (in stocks) if that helps the folks claiming you should go all in.

The problem is that its quite hard to predict what asset allocation works for you if and when you never had a lot of money in a downturn. You might learn that the chosen allocation is not correct, but by the time you figure that its too late.

Imagine you had the one million dollar windfall at the beginning of 2008 - how would DCA not have been an advantage in that scenario ? Ergo be perfectly reasonable to use ...

I would always be more careful and more conservative with a windfall since the psychology involved is a lot more tricky and immediate compared to the accumulation phase of a retirement account - doubly so if I am advising someone else and triply so if I am doing the investing for someone else.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

FireProof
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by FireProof » Wed Sep 18, 2019 5:44 pm

rascott wrote: โ†‘
Wed Sep 18, 2019 11:37 am
aramv wrote: โ†‘
Wed Sep 18, 2019 11:08 am
rascott wrote: โ†‘
Wed Sep 18, 2019 10:46 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am
rascott wrote: โ†‘
Wed Sep 18, 2019 9:26 am
Why leave $500k in cash? At least put it in a good money market or short-term Treasury bonds?

5 or 10 years to DCA it in is totally insane. Do it all at once, or at least all within 1 year.
Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
That would equate to an AA of 25/75 equities/fixed income. That alone is incredibly conservative. Why would you need to DCA into a 25/75 portfolio?
Your first post indicated you wanted a 50/50 allocation.
Thank you for the comment.Yes It is incredibly conservative. But maybe I'm not getting it. What are the benefits of a LUM SUM if the funds will be split in 20 years of less since my dad is 70 years old. Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
So it sounds like you are not investing for your dad for money he will ever need, but for the heirs. So how would 4 people between age 32-45 want to invest? Certainty not 25/75, like you are talking about (I wouldn't think).


Read this on why DCA isn't great.

https://ofdollarsanddata.com/the-cost-o ... ssion=true
Complete straw man, though. Whether it's good or bad, the point of DCA isn't to increase return, but actually explicitly to sacrifice some expected return in exchange for a reduction of sequence of returns risk. After all, the goal of investing over a finite time horizon is often not to maximize expected return, but to minimize risk of failure. So, while being entirely out of the market doesn't make sense, starting with a more conservative allocation and gradually increasing equity allocation to reach a long-term target allocation might be a perfectly rational strategy. The tricky part is making the horizon short enough to not sacrifice significant expected return, but long enough to significantly reduce sequence of returns risk. Obviously with any given parameters, a simulation could be run to find which strategy has the lowest risk of failure, but the parameters of the real world are, alas, unknown.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dbr » Wed Sep 18, 2019 5:55 pm

deikel wrote: โ†‘
Wed Sep 18, 2019 5:40 pm
dbr wrote: โ†‘
Wed Sep 18, 2019 9:28 am
Dollar cost averaging in this context is a much discussed topic. The mystery in these discussions is that people keep suggesting it when there is no rational ground to do it. I am curious if you would share why you are asking.
Emphasis is mine....This seems a bit strong...

The one event you want to avoid is that you panic in a market downturn and fire sell your assets on the way down, then don't invest when it goes up because you feel burned and only go back in when the market is already recovered - anything that prevents you (or in the case of the OP, the father) to do so seems a pretty logical approach to investing - its quite rational...

Not investing is also a way of investing (in cash that looses value with inflation). You can also lump sum invest it in CDs, bonds and treasuries and slowly glide path to an equity allocation you feel comfortable with over time and call it a gliding investment (in stocks) if that helps the folks claiming you should go all in.

The problem is that its quite hard to predict what asset allocation works for you if and when you never had a lot of money in a downturn. You might learn that the chosen allocation is not correct, but by the time you figure that its too late.

Imagine you had the one million dollar windfall at the beginning of 2008 - how would DCA not have been an advantage in that scenario ? Ergo be perfectly reasonable to use ...

I would always be more careful and more conservative with a windfall since the psychology involved is a lot more tricky and immediate compared to the accumulation phase of a retirement account - doubly so if I am advising someone else and triply so if I am doing the investing for someone else.
I don't claim people should go all in.* I would advise that people stop and think about their objectives, about whether they understand the possibilities for what might happen, and about what asset allocation would make sense. Deciding to DCA is a symptom that these things have not been done.

*I do claim that if they are sure what they want, then they should go all in, but the first thing is to ask if one is sure.

Everything you say is true except that all of this is about handling "windfalls" and finding an appropriate asset allocation and not about DCA. That is my whole point. Thinking about DCA sidetracks from thinking about the things that matter.

I will grant you that if an accidental result is that it slows someone down long enough to stop and think and do something more appropriate that is not a bad thing. But thinking one has already got it figured out when all the important issues are not even on the radar screen is a not good thing. I see asking about DCA as a red flag that the investor is not paying attention to what matters, and I am always curious why.

Also, I don't think short term experience teaches much about asset allocation and may more often then not teach the wrong lesson.

rascott
Posts: 1262
Joined: Wed Apr 15, 2015 10:53 am

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by rascott » Wed Sep 18, 2019 6:03 pm

FireProof wrote: โ†‘
Wed Sep 18, 2019 5:44 pm
rascott wrote: โ†‘
Wed Sep 18, 2019 11:37 am
aramv wrote: โ†‘
Wed Sep 18, 2019 11:08 am
rascott wrote: โ†‘
Wed Sep 18, 2019 10:46 am
aramv wrote: โ†‘
Wed Sep 18, 2019 10:25 am


Ok, good idea, 500K in Treasury Bonds. As far as All at Once, I don't think I can sleep well at night knowing the market took a giant drop, so DCA works for me. So you're thinking 500K in Teasury Bonds (RMD) will be taken out of that. And then 50/50 in Total Market and Total Bond?
That would equate to an AA of 25/75 equities/fixed income. That alone is incredibly conservative. Why would you need to DCA into a 25/75 portfolio?
Your first post indicated you wanted a 50/50 allocation.
Thank you for the comment.Yes It is incredibly conservative. But maybe I'm not getting it. What are the benefits of a LUM SUM if the funds will be split in 20 years of less since my dad is 70 years old. Let me see if I can go into detail a bit. Fortunately, my Father doesn't need the pension since his 401K is over 1Mil and he gets veteran's benefit each month (apprx $3K) and it takes care of all medical issues until he passes. Spouse is a non-issue. 4 children (45,41,34,32 yrs of age) . So I'm trying to plan a good strategy for All of us. The funds will be split into 4 when he passes. So assuming he lives until 90. We will all be (65,61,54,52). That will be 4 pies that are divided. So I'd like to try to get the most growth/risk balance assuming we have 20 years before the split. make sense? :sharebeer
So it sounds like you are not investing for your dad for money he will ever need, but for the heirs. So how would 4 people between age 32-45 want to invest? Certainty not 25/75, like you are talking about (I wouldn't think).


Read this on why DCA isn't great.

https://ofdollarsanddata.com/the-cost-o ... ssion=true
Complete straw man, though. Whether it's good or bad, the point of DCA isn't to increase return, but actually explicitly to sacrifice some expected return in exchange for a reduction of sequence of returns risk. After all, the goal of investing over a finite time horizon is often not to maximize expected return, but to minimize risk of failure. So, while being entirely out of the market doesn't make sense, starting with a more conservative allocation and gradually increasing equity allocation to reach a long-term target allocation might be a perfectly rational strategy. The tricky part is making the horizon short enough to not sacrifice significant expected return, but long enough to significantly reduce sequence of returns risk. Obviously with any given parameters, a simulation could be run to find which strategy has the lowest risk of failure, but the parameters of the real world are, alas, unknown.

OP wanted a 50/50 AA.... with 50% cash and 50% equities DCA in over 5-10 years!

My only point was he already had a conservative allocation at 50/50 (considering he is only investing for heirs) .... no need to worry about DCA beyond that.

NotWhoYouThink
Posts: 2802
Joined: Fri Dec 26, 2014 4:19 pm

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by NotWhoYouThink » Wed Sep 18, 2019 7:05 pm

How is the 401K invested? Because the IRA and 401K are very similar structures, they should be planned and managed as one entity.

delamer
Posts: 9484
Joined: Tue Feb 08, 2011 6:13 pm

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by delamer » Wed Sep 18, 2019 8:17 pm

aramv wrote: โ†‘
Wed Sep 18, 2019 5:08 pm
[quote=delamer post_id=4755708 time=1568843715 user_id=24124

Assuming your father is in agreement that he wants the money to be invested for the benefit of his children, that argues for a more aggressive allocation. If the average age of the kids is 38, then invest for a 38 year oldโ€™s time horizon.

Also, his allocation should be considered across both the IRA and pension money especially if it is 1) not needed to cover current expenses and 2) will all go to his kids.

Your father should consider gifting some money to his kids now, rather then them having to wait to inherit the money.
Hi delamer,
Thank you for the comment. He is situated already with his 401K , Veterans and Social Security. I can not stress that enough. He does want to help his kids with the funds whenever we need it. That's why I was suggesting half be in Cash; where he'll take the RMD (which will likely go to his kids) and the other half invested 50/50 in stocks and bonds. I'm more leaning on either 100% invested in 60/40 Stock/Bond AA and the RMD will be taken from those funds- Or $250K in Cash (RMD will take from Cash) and $750K in 60/40 Stock Bond AA. Thoughts?
I can see having a couple years of RMDs in cash, but your plans both seem too conservative.

Are you aware the your father can take in kind distributions from an IRA: https://tickertape.tdameritrade.com/ret ... rmds-17385

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dogagility
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dogagility » Thu Sep 19, 2019 5:39 am

Jack FFR1846 wrote: โ†‘
Wed Sep 18, 2019 9:22 am
I would DCA the entire amount in the span of one day.
+1
Combines the comfort of DCAing with the benefits of lump summing.
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

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Brianmcg321
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by Brianmcg321 » Thu Sep 19, 2019 6:17 am

Jack FFR1846 wrote: โ†‘
Wed Sep 18, 2019 9:22 am
I would DCA the entire amount in the span of one day.
This.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

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aramv
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Thu Sep 19, 2019 9:09 am

delamer wrote: โ†‘
Wed Sep 18, 2019 8:17 pm
aramv wrote: โ†‘
Wed Sep 18, 2019 5:08 pm
[quote=delamer post_id=4755708 time=1568843715 user_id=24124

Assuming your father is in agreement that he wants the money to be invested for the benefit of his children, that argues for a more aggressive allocation. If the average age of the kids is 38, then invest for a 38 year oldโ€™s time horizon.

Also, his allocation should be considered across both the IRA and pension money especially if it is 1) not needed to cover current expenses and 2) will all go to his kids.

Your father should consider gifting some money to his kids now, rather then them having to wait to inherit the money.
Hi delamer,
Thank you for the comment. He is situated already with his 401K , Veterans and Social Security. I can not stress that enough. He does want to help his kids with the funds whenever we need it. That's why I was suggesting half be in Cash; where he'll take the RMD (which will likely go to his kids) and the other half invested 50/50 in stocks and bonds. I'm more leaning on either 100% invested in 60/40 Stock/Bond AA and the RMD will be taken from those funds- Or $250K in Cash (RMD will take from Cash) and $750K in 60/40 Stock Bond AA. Thoughts?
I can see having a couple years of RMDs in cash, but your plans both seem too conservative.

Are you aware the your father can take in kind distributions from an IRA: https://tickertape.tdameritrade.com/ret ... rmds-17385
I see, maybe putting the entire $1Mill ( DCA in a 1 year span) 60/40 - and take the RMD from the stocks/bonds when its time to withdraw. at least the full amount will be invested. Thoughts?

dbr
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by dbr » Thu Sep 19, 2019 9:51 am

aramv wrote: โ†‘
Thu Sep 19, 2019 9:09 am


I see, maybe putting the entire $1Mill ( DCA in a 1 year span) 60/40 - and take the RMD from the stocks/bonds when its time to withdraw. at least the full amount will be invested. Thoughts?
A completely simple and logical approach. Invest the assets across the IRA, the 401k, and taxable holdings according whatever risk you want to take. An RMD is just a transfer of assets out of tax deferred accounts into taxable accounts with a tax bill to go along. RMD can be taken by transferring assets or by selling something and transferring cash. The cash can be reinvested or spent. If spent, then that is a withdrawal. If one sells things it is an opportunity to rebalance the asset allocation. The 401k has RMDs as well, how is that being handled? The entirety of the investment assets should be managed as a unified portfolio.

delamer
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by delamer » Thu Sep 19, 2019 9:56 am

dbr wrote: โ†‘
Thu Sep 19, 2019 9:51 am
aramv wrote: โ†‘
Thu Sep 19, 2019 9:09 am


I see, maybe putting the entire $1Mill ( DCA in a 1 year span) 60/40 - and take the RMD from the stocks/bonds when its time to withdraw. at least the full amount will be invested. Thoughts?
A completely simple and logical approach. Invest the assets across the IRA, the 401k, and taxable holdings according whatever risk you want to take. An RMD is just a transfer of assets out of tax deferred accounts into taxable accounts with a tax bill to go along. RMD can be taken by transferring assets or by selling something and transferring cash. The cash can be reinvested or spent. If spent, then that is a withdrawal. If one sells things it is an opportunity to rebalance the asset allocation. The 401k has RMDs as well, how is that being handled? The entirety of the investment assets should be managed as a unified portfolio.
I agree.

But 60/40 is conservative for a portfolio whose beneficiaries are the ages of you and your siblings, unless your father is planning on making large cash gifts each year.

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aramv
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by aramv » Thu Sep 19, 2019 12:13 pm

dbr wrote: โ†‘
Thu Sep 19, 2019 9:51 am
aramv wrote: โ†‘
Thu Sep 19, 2019 9:09 am


I see, maybe putting the entire $1Mill ( DCA in a 1 year span) 60/40 - and take the RMD from the stocks/bonds when its time to withdraw. at least the full amount will be invested. Thoughts?
A completely simple and logical approach. Invest the assets across the IRA, the 401k, and taxable holdings according whatever risk you want to take. An RMD is just a transfer of assets out of tax deferred accounts into taxable accounts with a tax bill to go along. RMD can be taken by transferring assets or by selling something and transferring cash. The cash can be reinvested or spent. If spent, then that is a withdrawal. If one sells things it is an opportunity to rebalance the asset allocation. The 401k has RMDs as well, how is that being handled? The entirety of the investment assets should be managed as a unified portfolio.
Yes, I forgot that the RMD is on his entire Portfolio - 401K , Personal IRA , etc. so that'll limit the amount taken out of the pension.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by delamer » Thu Sep 19, 2019 12:39 pm

aramv wrote: โ†‘
Thu Sep 19, 2019 12:13 pm
dbr wrote: โ†‘
Thu Sep 19, 2019 9:51 am
aramv wrote: โ†‘
Thu Sep 19, 2019 9:09 am


I see, maybe putting the entire $1Mill ( DCA in a 1 year span) 60/40 - and take the RMD from the stocks/bonds when its time to withdraw. at least the full amount will be invested. Thoughts?
A completely simple and logical approach. Invest the assets across the IRA, the 401k, and taxable holdings according whatever risk you want to take. An RMD is just a transfer of assets out of tax deferred accounts into taxable accounts with a tax bill to go along. RMD can be taken by transferring assets or by selling something and transferring cash. The cash can be reinvested or spent. If spent, then that is a withdrawal. If one sells things it is an opportunity to rebalance the asset allocation. The 401k has RMDs as well, how is that being handled? The entirety of the investment assets should be managed as a unified portfolio.
Yes, I forgot that the RMD is on his entire Portfolio - 401K , Personal IRA , etc. so that'll limit the amount taken out of the pension.
To clarify, separate RMDs must be taken from the 401(k) and the IRA. You canโ€™t calculate a total RMD amount for both accounts and take it out of the 401(k) only.

magicrat
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Re: 1Mil$ Dollar-Cost Averaging is a strategy

Post by magicrat » Thu Sep 19, 2019 2:55 pm

Brianmcg321 wrote: โ†‘
Thu Sep 19, 2019 6:17 am
Jack FFR1846 wrote: โ†‘
Wed Sep 18, 2019 9:22 am
I would DCA the entire amount in the span of one day.
This.
If you buy mutual funds you really have to DCA over 2 days :)

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