Investing a Lump Sum in this Market

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pinkfreud
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Joined: Sat Jan 04, 2020 2:56 pm

Investing a Lump Sum in this Market

Post by pinkfreud » Sun Mar 22, 2020 1:36 pm

I recently inherited a 6 figure lump sum after the sale of an asset left in my name. I'm 28 and just graduated med school. I went to work to learn as much as possible by reading the Boglehead guide to investing and other books recommended by this forum.I also became interested in value investing and read books on the basics of fundamental analysis. I paid off all my high interest loans and set up a 12 month emergency fund.

Now, I have a mid 6 figure sum left to invest into this bear market. I think the Boglehead approach is the most tried and true method for risk-adjusted long term returns. I know I am taking on unnecessary risk and the odds that I will be beat a more traditional DCA or lump sum strategy are not in my favor. My intuition is markets will continue to drop. I may be 100% wrong. To strike a balance, I invested a lump sum of 35% of my investable assets into VTI when it was at 25-30% off highs.

I am admittedly market timing. As opposed to DCA, I thought I might create a limit order schedule to automate the process.

% from High............% of Equity Invested
25-30%................. 35% (settled)
30-35%................. 0%
35-40%................. 0%
40-45%................. 15%
45-50%................. 15%
50+%....................35%

(1) Thoughts on this strategy? I feel my risk tolerance is high and I will have job security in the future as a physician, so I feel more comfortable with the considerable downside risk this strategy entails.
(2) Should I add a DCA component to this limit order schedule? Such that a portion of my investable assets is invested by limit order benchmarks and the rest weekly/monthly.
(2) Should I have an international position? Vanguard recommended 60/40 VTI/VXUS. Considering rebalancing to include a 20-40% VXUS position.
(3) Would you add any tilt to equity? E.g. a Small Cap Value ETF like like VBR.
(4) Worth taking a (max) 5-10% position in some value stocks?

Appreciate any insight

billy269
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Re: Investing a Lump Sum in this Market

Post by billy269 » Sun Mar 22, 2020 1:39 pm

I'm doing something very similar with my savings. The average drawdown is around 35-38%. Curious why you aren't putting anything more in until VTI is 40% down. What if it rebounds before then?

Counterpoint
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Re: Investing a Lump Sum in this Market

Post by Counterpoint » Sun Mar 22, 2020 6:37 pm

If I were you, I would look for “good enough” rather than trying to hit the home run. You’ve already done extremely well (aka been very lucky) in buying a third of your lump sum in a 25-30% down market.

I personally would definitely DCA for a chunk of the remainder, perhaps over the next 4-6 months.

If I were to set limit orders for a portion, I personally would have a greater weighting for the more likely sections (30-40% down), and smaller weightings for the less likely 40-50% down.
For this portion, you may be helped by thinking of your personal “regret optimization”. Go through this thought experiment:
(1) How much regret would you feel if the market rallied from the current 30% down and never got back to those levels, and you missed out?
(2) How much regret would you feel if the market indeed did get to 50% and you only had a small fraction of your portfolio there?
Where you personally come out on these two questions may help you decide which way to weight your limit orders.

On your questions 3-5, there are threads galore. But after many years of investing, in my opinion the value of simplicity is underrated. If I were you, I would decide on the international %, and just do VTI and VXUS in that %. Simplifies the initial investment, rebalancing (which you can do in your retirement accounts for your overall portfolio), and all other portfolio considerations. And most importantly, with your limited time to think about finances as a resident and then attending, your attention will be on the most important things: How much to save, and your overall asset allocation. You will not get sidetracked on chump change issues which don’t make a big difference in the long run and end up complicating your finances.

MotoTrojan
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Re: Investing a Lump Sum in this Market

Post by MotoTrojan » Sun Mar 22, 2020 6:39 pm

Lump sum. This is a no brainer.

Counterpoint
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Re: Investing a Lump Sum in this Market

Post by Counterpoint » Sun Mar 22, 2020 6:55 pm

I should have clarified that additional Lump Sum at these levels would have been my #1 choice.
The other options I mentioned were suggestions if you did not want to lump sum for some portion of it.

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Phineas J. Whoopee
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Re: Investing a Lump Sum in this Market

Post by Phineas J. Whoopee » Tue Mar 24, 2020 9:39 pm

What's the alternative plan? Wait until stock prices go up and then invest?
PJW

Dandy
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Re: Investing a Lump Sum in this Market

Post by Dandy » Wed Mar 25, 2020 8:21 am

At your age and assuming this is for the longer term I'd do a lump sum at the desired allocation (which hopefully is your 35%) and then automate a monthly DCA for a decent amount e.g. 10k?, 20k?. Any month with a big drop >5%? double up on the monthly investment for that month with an eye toward keeping your desired overall allocation.

Gets you off the sidelines and you have an automated investment plan which you also plan to supplement with additional purchases when there is a significant equity drop.

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Peculiar_Investor
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Re: Investing a Lump Sum in this Market

Post by Peculiar_Investor » Wed Mar 25, 2020 8:32 am

pinkfreud wrote:
Sun Mar 22, 2020 1:36 pm
Appreciate any insight
I don't have any specific insights on the specifics of your question, but I can provide some places to do some more research and learning.

Are you aware of the wiki? A couple of articles might provide some insight, Managing a windfall and Dollar cost averaging.

There is also a Vanguard research paper, which unfortunately doesn't seem to be available on the Vanguard website. An alternative link is Dollar-cost averaging just means taking risk later.
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