Lump sum with tax loss harvesting or dollar cost averaging in a falling market

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
frugaltigris
Posts: 92
Joined: Fri Sep 01, 2017 8:44 am

Lump sum with tax loss harvesting or dollar cost averaging in a falling market

Post by frugaltigris »

Hi All

I have some dry powder which I would like to put in some ETFs in my taxable account. I am early 40's and I don't need this for next 20 years. I want it fully invested in equities and will not sell them even if market collapses completely.

What would be the most beneficial approach in a falling market: lump sum and TLH if the market goes down, or DCA over next 3 months assuming the market goes down?

I have been thinking to do a lump sum and keep doing TLH to grow my TLH balance for coming years. But given all the talk of DCA now, I am just wondering if I am missing any benefit if doing lump sum and TLH.


Please advise. Thanks.
Topic Author
frugaltigris
Posts: 92
Joined: Fri Sep 01, 2017 8:44 am

Re: Lump sum with tax loss harvesting or dollar cost averaging in a falling market

Post by frugaltigris »

bumping up for some response.
rasta
Posts: 204
Joined: Fri Jul 27, 2018 4:29 pm

Re: Lump sum with tax loss harvesting or dollar cost averaging in a falling market

Post by rasta »

Neither.

Don't try to catch a falling knife.
Topic Author
frugaltigris
Posts: 92
Joined: Fri Sep 01, 2017 8:44 am

Re: Lump sum with tax loss harvesting or dollar cost averaging in a falling market

Post by frugaltigris »

Even if the knife is falling isn't TLH beneficial? The "knife" will bounce back. Of course we are all sure of the turnaround of our great country and world economy. If not we are all screwed any way.

Please Bogleheads help me understand this. If I have dry powder left should I just do lump sum and TLH or DCA? All what I have learned here seems to suggest I should go for TLH.
User avatar
grabiner
Advisory Board
Posts: 28693
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Lump sum with tax loss harvesting or dollar cost averaging in a falling market

Post by grabiner »

If you knew the market was going to go down, staying out until it goes down would be correct. However, you don't know; you know the market will be risky, but you should always know that, and everyone currently in the market must expect it to go up.

So it does make sense to invest the money. Mathematically, putting it all in at once is optimal, since the market is more likely to go up than down.

The reason to dollar-cost average is psychological; you will be increasing your risk level over time, and you may want to do that more gradually. If you are an established investor and have money you know will be in the stock market for the next 20 years, you don't need to dollar-cost average. (The fact that you are considering putting money into the market now suggests that you already have a good idea of your risk tolerance.)

If you do lump-sum into the market and the market goes down, you will have a loss to harvest (selling your stock fund to buy another stock fund), so the IRS will share your pain. If the market goes up, you will have a gain, but you don't need to sell, so the tax cost on the gain will be deferred.
Wiki David Grabiner
Post Reply