Lump Sum purchase in current market

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user18732
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Lump Sum purchase in current market

Post by user18732 »

I was fortunate to come into a windfall of $250K in July of this year and the plan is to put it into my brokerage account. Allocation is set to be 70% VTSAX & 30% VTIAX.

I had decided to spread out the purchase through DCA every 2 weeks through October as that was what I felt my risk tolerance was. Now seeing things at an all-time high and my last 3 purchases buying at those high marks, I am wondering if I should change course.

I understand this would meaning I am timing the market which is why I went DCA to begin with. What are your thoughts? There is no question if this money will go into the market, it is more one of delaying a tranche to avoid "buying high"
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arcticpineapplecorp.
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Re: Lump Sum purchase in current market

Post by arcticpineapplecorp. »

it's generally known that lump sum investing has done better than DCA 2 out of every 3 years, because the market has gone up 2 out of every 3 years generally speaking.

So why do people DCA? They can't stand the thought of plowing in that lump sum and seeing the market fall thereafter. It's a psychological insurance policy. That's all.

But the tradeoff that you're finding with DCA is if the market goes up over time (as it does more often) and you're buying at higher and higher prices.

So there's two regrets that attempt to be minimized. Which is the greater?
That you will dump money in at once and regret it if the market falls
or
That you DCA and regret it because the market rises?

There is no right answer, it's your greater personal regret.

think about which regret you want to minimize more and then take the appropriate action.

Also just because you might buy in at higher prices than the past, doesn't mean prices won't go higher still in the future.

Bob was the world's worst market timer (he kept hoarding cash and instead of deploying it when he had it, he instead bought in at every market top):

https://awealthofcommonsense.com/2014/0 ... ket-timer/

the thing is, things still worked out fine for Bob for two reasons:
1. there were still higher highs to be seen in the future.
2. while he may have bought at previous high points, more importantly, he never sold.
Last edited by arcticpineapplecorp. on Mon Aug 31, 2020 3:12 pm, edited 2 times in total.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Doctor Rhythm
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Re: Lump Sum purchase in current market

Post by Doctor Rhythm »

Yet another duplicate :oops:
Last edited by Doctor Rhythm on Mon Aug 31, 2020 3:18 pm, edited 1 time in total.
Doctor Rhythm
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Re: Lump Sum purchase in current market

Post by Doctor Rhythm »

Doctor Rhythm wrote: Mon Aug 31, 2020 3:11 pm
user18732 wrote: Mon Aug 31, 2020 2:59 pm
I had decided to spread out the purchase through DCA every 2 weeks through October as that was what I felt my risk tolerance was. Now seeing things at an all-time high and my last 3 purchases buying at those high marks, I am wondering if I should change course.

I understand this would meaning I am timing the market which is why I went DCA to begin with. What are your thoughts? There is no question if this money will go into the market, it is more one of delaying a tranche to avoid "buying high"
I don’t want to get into a semantic debate, but you were timing the market (perhaps unintentionally) when you originally decided to DCA. You made a bet that the average weighted NAV of each DCA purchase through October was going to be lower than the price in July. So far, that isn’t happening. To continue to DCA is to bet that the market will fall in the next month.

In any case, it’s just another month until October, so it probably doesn’t matter what you do with the remaining balance.
Doctor Rhythm
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Re: Lump Sum purchase in current market

Post by Doctor Rhythm »

Duplicate
Last edited by Doctor Rhythm on Mon Aug 31, 2020 3:16 pm, edited 1 time in total.
Doctor Rhythm
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Re: Lump Sum purchase in current market

Post by Doctor Rhythm »

Aargh. Another duplicate. :annoyed
Last edited by Doctor Rhythm on Mon Aug 31, 2020 3:19 pm, edited 1 time in total.
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arcticpineapplecorp.
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Re: Lump Sum purchase in current market

Post by arcticpineapplecorp. »

Doctor Rhythm wrote: Mon Aug 31, 2020 3:14 pm
user18732 wrote: Mon Aug 31, 2020 2:59 pm
I had decided to spread out the purchase through DCA every 2 weeks through October as that was what I felt my risk tolerance was. Now seeing things at an all-time high and my last 3 purchases buying at those high marks, I am wondering if I should change course.

I understand this would meaning I am timing the market which is why I went DCA to begin with. What are your thoughts? There is no question if this money will go into the market, it is more one of delaying a tranche to avoid "buying high"
I don’t want to get into a semantic debate, but you were timing the market (perhaps unintentionally) when you originally decided to DCA. You made a bet that the average weighted NAV of each DCA purchase through October was going to be lower than the price in July. So far, that isn’t happening. To continue to DCA is to bet that the market will fall in the next month.

In any case, it’s just another month until October, so it probably doesn’t matter what you do with the remaining balance.
Is the rhythm based in triplets because you posted the same thing three times! :P
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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user18732
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Re: Lump Sum purchase in current market

Post by user18732 »

Good points. So what would the suggestion if DCA was already timing the market, just bite the bullet and go lump sum or keep with the DCA approach I decided in July?

By the way, the reason the DCA approach was taken was more because I was unsure what I wanted to do with the money (refi, etc) so I started investing chunks while it gave me time to work through options. I knew at the time that none of these other life decisions would require all the money, so that was why I settled on a short DCA approach.
Doctor Rhythm
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Re: Lump Sum purchase in current market

Post by Doctor Rhythm »

Since the end of your DCA period is ending in just over a month, it probably won’t matter much what you do.
TNWoods
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Re: Lump Sum purchase in current market

Post by TNWoods »

The difference between the two methods is very small. The fact that you are actually investing it well is the most important thing.

You'll either end up with an "A" or an "A+". They're both good.

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user18732
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Re: Lump Sum purchase in current market

Post by user18732 »

Sounds good. I appreciate the feedback. This is the first windfall I have ever received so it really did throw me for a loop compared to the invest X percent of my income every month approach that I had been doing for a decade.
Doctor Rhythm
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Re: Lump Sum purchase in current market

Post by Doctor Rhythm »

arcticpineapplecorp. wrote: Mon Aug 31, 2020 3:16 pm Is the rhythm based in triplets because you posted the same thing three times! :P
Kept hitting the “ “ button instead of the pencil. Boglehead equivalent of drunk posting. :wink:
burritoLover
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Re: Lump Sum purchase in current market

Post by burritoLover »

user18732 wrote: Mon Aug 31, 2020 2:59 pm I was fortunate to come into a windfall of $250K in July of this year and the plan is to put it into my brokerage account. Allocation is set to be 70% VTSAX & 30% VTIAX.

I had decided to spread out the purchase through DCA every 2 weeks through October as that was what I felt my risk tolerance was. Now seeing things at an all-time high and my last 3 purchases buying at those high marks, I am wondering if I should change course.

I understand this would meaning I am timing the market which is why I went DCA to begin with. What are your thoughts? There is no question if this money will go into the market, it is more one of delaying a tranche to avoid "buying high"
You might find "value averaging" a better option for you than dollar cost averaging.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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Re: Lump Sum purchase in current market

Post by anon_investor »

user18732 wrote: Mon Aug 31, 2020 3:25 pm Sounds good. I appreciate the feedback. This is the first windfall I have ever received so it really did throw me for a loop compared to the invest X percent of my income every month approach that I had been doing for a decade.
If you do not need the money right now, lump sum and do not look back. Worst case the market crashes and you tax loss harvest.
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Re: Lump Sum purchase in current market

Post by LadyGeek »

Doctor Rhythm - I removed one of your duplicate posts. If you have further problems, we have a test thread you can use: Please Try Out Test Posts Here
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Re: Lump Sum purchase in current market

Post by JoeRetire »

user18732 wrote: Mon Aug 31, 2020 2:59 pm I had decided to spread out the purchase through DCA every 2 weeks through October as that was what I felt my risk tolerance was. Now seeing things at an all-time high and my last 3 purchases buying at those high marks, I am wondering if I should change course.

I understand this would meaning I am timing the market which is why I went DCA to begin with. What are your thoughts?
Stay the course. Nothing meaningful has changed recently. All-time highs mean nothing for long-term investors.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
hnd
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Re: Lump Sum purchase in current market

Post by hnd »

disclaimer : i'm assuming this is inheritance

one way of thinking about it is that this money likely came from the stock market and was lump summed paid to you, lump summing placing it back into the market at your preferred location is just putting it back where it came from but now its in your name. if the person were still alive and the market crashed 33% in 5 months and they died a day later, you'd of inherited 167k. you wouldn't of looked at the money and what it would of been worth had they died only a few months earlier. You are taking money already on a path and altering it slightly and its in your name. what it ends up being when you need it is what it is. Enjoy the windfall and let it do what it did for whoever gave it to you.
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Re: Lump Sum purchase in current market

Post by Third Son »

user18732 wrote: Mon Aug 31, 2020 2:59 pm I was fortunate to come into a windfall of $250K in July of this year and the plan is to put it into my brokerage account. Allocation is set to be 70% VTSAX & 30% VTIAX.

I had decided to spread out the purchase through DCA every 2 weeks through October as that was what I felt my risk tolerance was. Now seeing things at an all-time high and my last 3 purchases buying at those high marks, I am wondering if I should change course.

I understand this would meaning I am timing the market which is why I went DCA to begin with. What are your thoughts? There is no question if this money will go into the market, it is more one of delaying a tranche to avoid "buying high"
As an example for you, I put a sizeable amount of coin into a treasury bond index fund in July. It quickly lost 1.2% over the course of two weeks. It is now back to almost where it was in July.

Another example. I put an even larger amount in a stock index fund in the middle of March. We know how that turned out. Where am I now? Up about 7% from the beginning of the year.

The market will always be high at some point in time. Trying to figure this stuff out will make you bats. A solid plan is something worth sticking to.

Oh and BTW..... I retired in February right before the pandemic took hold. I have less time to wait after a large market correction. But having been invested for 38 years has given me a portfolio that can weather a storm.

Lump sum it and go on with your life. You have better things to do.
Last edited by Third Son on Mon Aug 31, 2020 9:22 pm, edited 1 time in total.
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core4portfolio
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Re: Lump Sum purchase in current market

Post by core4portfolio »

I put lump sum, market tanked and did TLH. Market came up and so as my investment.
Now i can do taxloss additionally this year
Allocation : 80/20 (80% TSM, 20% TBM) | Need to learn fishing sooner
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dogagility
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Re: Lump Sum purchase in current market

Post by dogagility »

Lump sum the remainder now. (as should have been done originally. :wink:)
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