Difficulty lnvesting a Windfall

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optimpessim
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Difficulty lnvesting a Windfall

Post by optimpessim » Tue Oct 29, 2019 2:13 pm

I have received a windfall. It is currently sitting in my Vanguard Brokerage Settlement Account. I was going to invest it this week. For years I have been a buy and hold investor who disparaged those who market timed. But at this time it seems foolhardy for me to dump into the stock market an amount that I consider to be quite large. I cringe at the idea of Dollar Cost Averaging because it is almost against my principals, however, I am petrified to invest it all at once. The portion destined for bonds I will leave in the settlement fund for the time being since it is earning interest not much different from what bond funds are earning at this time.

I am not complaining about the fact that I have this problem. It is a good one to have but I am afraid of finding I am psychologically unable to move for a long time and I know that would not be good! :annoyed

I guess I just have to determine what amount I can stomach investing now and make myself commit to repeating that investment every month or two regardless of what the market is doing.

I guess I have answered for myself. Admitting that I have this crack in my investing armor is probably good for my soul.

anon_investor
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Re: Difficulty lnvesting a Windfall

Post by anon_investor » Tue Oct 29, 2019 2:17 pm

Maybe it is a good time to revisit your asset allocation...

Jack FFR1846
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Re: Difficulty lnvesting a Windfall

Post by Jack FFR1846 » Tue Oct 29, 2019 2:23 pm

I don't know how much your windfall is. I moved a big amount (about 1 year of spending) into Schwab yesterday. This morning it showed up. Once the market opened, I did the calculator and hit the buy button. All done.

Try that.
Bogle: Smart Beta is stupid

bloom2708
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Re: Difficulty lnvesting a Windfall

Post by bloom2708 » Tue Oct 29, 2019 2:25 pm

What is your age and your desired mix of stocks and bonds and cash based on your desire/need to take risk?

If you are 60/40 you should be able to invest today at 60/40 and keep it rolling. Might things drop? Sure. Might they stay flat? Sure. Might stocks continue to go up? Sure.

If you are 100/0 or 95/5 then I understand your reluctance but not your choice of that mix. Good luck!
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jello_nailer
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Re: Difficulty lnvesting a Windfall

Post by jello_nailer » Tue Oct 29, 2019 2:27 pm

LOL.

With you of course. It's remarkable how much easier it is to give sound advice than to do sound action.

Good for you on the windfall! You know have a 1st world problem - do I LS or DCA...

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bertilak
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Re: Difficulty lnvesting a Windfall

Post by bertilak » Tue Oct 29, 2019 2:35 pm

No matter how slowly you invest, there will come a time when it is all invested and you will then be subject to whatever is scaring you right now.

The trick is to not have a scary allocation. Temper stocks with bonds at some ratio you are comfortable with, then be like Nike and "just do it." It will eventually "just be done" in any case. It is a good idea to come up with a non-scary allocation because if it scares you today it will probably scare you tommorrow or next year.

And remember: Time in the market is better than timing the market.
Last edited by bertilak on Tue Oct 29, 2019 2:38 pm, edited 1 time in total.
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David Jay
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Re: Difficulty lnvesting a Windfall

Post by David Jay » Tue Oct 29, 2019 2:36 pm

You have to get past this mental obstacle. Otherwise you will be like the people who pulled out of the market in early January of 2016 and are still sitting on the sidelines waiting for “the big one”.

May I suggest that you reduce the number of DCA payments as a compromise. How about purchasing 1/3 of the stock allocation on November 1, 1/3 on January 1 [2], the final third on March 1. Done.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

deltaneutral83
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Re: Difficulty lnvesting a Windfall

Post by deltaneutral83 » Tue Oct 29, 2019 3:00 pm

I have invested everything in my equity allocation each and every minute that I do not hit the "liquidate entire portfolio" button in side my account. So I literally invest a windfall every trading day. Today is no different than yesterday and tomorrow will be no different than today with regards to the scenario the OP has stated which is "mental accounting."

MotoTrojan
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Re: Difficulty lnvesting a Windfall

Post by MotoTrojan » Tue Oct 29, 2019 3:07 pm

I would not withhold the bond investment longer than equity; may miss a bounce in NAV in response to an equity decline.

Have a good tax-loss harvest plan ready.

Lump sum.

gr7070
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Re: Difficulty lnvesting a Windfall

Post by gr7070 » Tue Oct 29, 2019 4:19 pm

deltaneutral83 wrote:
Tue Oct 29, 2019 3:00 pm
I have invested everything in my equity allocation each and every minute that I do not hit the "liquidate entire portfolio" button in side my account. So I literally invest a windfall every trading day. Today is no different than yesterday and tomorrow will be no different than today with regards to the scenario the OP has stated which is "mental accounting."
This!

I use the same outlook on my employment. Technically I can quit tomorrow, regardless of (not) FI. I choose to show up every day.

It's applicable to many other choices one has made in the past that can be undone/changed at any moment.

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Watty
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Re: Difficulty lnvesting a Windfall

Post by Watty » Tue Oct 29, 2019 7:12 pm

If you gave more information you might get better suggestions about what to do.

Depending on your age the money might be invested for another 40+ years, spreading the investing of it out over the next year might make all that much difference.

There are LOTS of opinions on it but if you have a mortage then paying it off, or doing a mortage recast, would be another option to consider.

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optimpessim
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Re: Difficulty lnvesting a Windfall

Post by optimpessim » Tue Oct 29, 2019 8:38 pm

I worked on a reply and then managed to lose it. I'm not adept at this. But I do want to say that I much appreciate the replies I received. I now realize I mislead some by not making clear that asset allocation is not the issue here. I am very comfortable with my AA which is roughly 60/40. The problem is my head that is fighting me. Special thanks to the following posts which are nudging me along the road to making a rational decision as to how to proceed.
deltaneutral83 wrote:
Tue Oct 29, 2019 3:00 pm
I have invested everything in my equity allocation each and every minute that I do not hit the "liquidate entire portfolio" button in side my account. So I literally invest a windfall every trading day. Today is no different than yesterday and tomorrow will be no different than today with regards to the scenario the OP has stated
David Jay wrote:
Tue Oct 29, 2019 2:36 pm
You have to get past this mental obstacle. Otherwise you will be like the people who pulled out of the market in early January of 2016 and are still sitting on the sidelines waiting for “the big one”.

May I suggest that you reduce the number of DCA payments as a compromise. How about purchasing 1/3 of the stock allocation on November 1, 1/3 on January 1 [2], the final third on March 1. Done.
Thanks to all. I think I had better post this before I lose it all again.

TheDDC
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Re: Difficulty lnvesting a Windfall

Post by TheDDC » Tue Oct 29, 2019 8:56 pm

optimpessim wrote:
Tue Oct 29, 2019 8:38 pm
I worked on a reply and then managed to lose it. I'm not adept at this. But I do want to say that I much appreciate the replies I received. I now realize I mislead some by not making clear that asset allocation is not the issue here. I am very comfortable with my AA which is roughly 60/40. The problem is my head that is fighting me. Special thanks to the following posts which are nudging me along the road to making a rational decision as to how to proceed.
deltaneutral83 wrote:
Tue Oct 29, 2019 3:00 pm
I have invested everything in my equity allocation each and every minute that I do not hit the "liquidate entire portfolio" button in side my account. So I literally invest a windfall every trading day. Today is no different than yesterday and tomorrow will be no different than today with regards to the scenario the OP has stated
David Jay wrote:
Tue Oct 29, 2019 2:36 pm
You have to get past this mental obstacle. Otherwise you will be like the people who pulled out of the market in early January of 2016 and are still sitting on the sidelines waiting for “the big one”.

May I suggest that you reduce the number of DCA payments as a compromise. How about purchasing 1/3 of the stock allocation on November 1, 1/3 on January 1 [2], the final third on March 1. Done.
Thanks to all. I think I had better post this before I lose it all again.
Do you need this money immediately (in the next five years)? If not, go VTSAX 100%. If you do, then VBIAX looks good. That's a 50/50 fund.

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gr7070
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Re: Difficulty lnvesting a Windfall

Post by gr7070 » Tue Oct 29, 2019 9:11 pm

Watty wrote:
Tue Oct 29, 2019 7:12 pm
There are LOTS of opinions on it but if you have a mortage then paying it off, or doing a mortage recast, would be another option to consider.
Excellent option, especially with the outlook presented in the OP.

mortfree
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Re: Difficulty lnvesting a Windfall

Post by mortfree » Tue Oct 29, 2019 9:25 pm

VBIAX is 60:40

Scooter57
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Re: Difficulty lnvesting a Windfall

Post by Scooter57 » Tue Oct 29, 2019 9:57 pm

"A foolish consistency is the hobgoblin of small minds."--Emerson.

Think through Pascal's wager. If you don't invest it all now what is the worst that can happen? If you do invest it now what is the worst that can happen? Which outcome would be more devastating?

Is the windfall large enough that you might legitimately rethink your allocation and switch to a preservation strategy rather than a strategy that takes risk to try to get more? I found Dr.Bernstein's question, If you've won the game why keep playing" very helpful in making my decision about how much risk to take with a windfall.

I take the same amount of risk with my pre-windfall money and earnings as before, but the windfall is invested extremely conservatively in CDs with above market rates. I would be much more unhappy to see it decrease than I would be happy seeing it soar. My portfolio is still growing enough that it is beating inflation after taxes and generous gifting.and I sleep very well at night no matter what the market or economy does.

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Portfolio7
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Re: Difficulty lnvesting a Windfall

Post by Portfolio7 » Tue Oct 29, 2019 11:10 pm

It sounds like you are ok buying the equity portion of your portfolio, but hesitant on bonds?

I don't think there's anything wrong with an Equity / Cash portfolio, if the cash yields match bond yields. Buy your equities and hold your cash in perpetuity, or until you feel comfortable moving it to bonds. Maybe your 60/40 portfolio becomes 60/35/5 (Eq/Bond/Cash)? No worries. Totally legit portfolio.

If the issue really rests with how quickly you buy into equities.... I'd just close my eyes and push the button. If you are having difficulty with that, you might prefer this method I've used: invest the maximum you feel safe investing immediately, but do it today!. A month from now do the same. Make yourself invest at least 10% per month, no excuses, but as much as 100%. Repeat on the same day each month (i.e. Oct 31, Nov 31) until fully invested. Once you are invested (and I suspect sooner than that), perhaps the anxiety will disappear.
"An investment in knowledge pays the best interest" - Benjamin Franklin

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F150HD
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Re: Difficulty lnvesting a Windfall

Post by F150HD » Wed Oct 30, 2019 5:58 am

I have received a windfall. It is currently sitting in my Vanguard Brokerage Settlement Account.
Have you maxed out your tax deferred accounts this year? (through work or whatnot?) that was my first thought/question. Same for your annual Roth contribution....unless all this info is posted elsewhere on the board

Have also ran across this before on this board and elsewhere

https://www.schwartzaccountants.com/2017/12/buying-and-selling-mutual-funds-at-year-end-be-aware-of-year-end-distributions/

glorat
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Re: Difficulty lnvesting a Windfall

Post by glorat » Wed Oct 30, 2019 6:56 am

optimpessim wrote:
Tue Oct 29, 2019 8:38 pm
I worked on a reply and then managed to lose it. I'm not adept at this. But I do want to say that I much appreciate the replies I received. I now realize I mislead some by not making clear that asset allocation is not the issue here. I am very comfortable with my AA which is roughly 60/40. The problem is my head that is fighting me. Special thanks to the following posts which are nudging me along the road to making a rational decision as to how to proceed.
More rational material to hit yourself over the head with... https://ofdollarsanddata.com/the-cost-of-waiting/

Every day you worry about this and leave things in case instead of putting into your AA, you are losing 0.5bps on your windfall. Every day. Thats 0.005% every day... Take a month to decide to invest that's 0.15% gone. Leaving cash as part of DCA entry - money wasted. Look how many threads (especially in the non-US forum) worry about choosing the right ETF to save 0.1% annual here and then and you could wipe out all that cost just by doing nothing for a month.

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optimpessim
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Re: Difficulty lnvesting a Windfall

Post by optimpessim » Thu Oct 31, 2019 10:09 am

Just this morning I moved a sizeable amount from the Settlement Fund to Total Stock Market. It wasn't easy but already my anxiety level is much reduced! I will proceed following Portfolio7's example:
Portfolio7 wrote:
Tue Oct 29, 2019 11:10 pm
If the issue really rests with how quickly you buy into equities.... I'd just close my eyes and push the button. If you are having difficulty with that, you might prefer this method I've used: invest the maximum you feel safe investing immediately, but do it today!. A month from now do the same. Make yourself invest at least 10% per month, no excuses, but as much as 100%. Repeat on the same day each month (i.e. Oct 31, Nov 31) until fully invested. Once you are invested (and I suspect sooner than that), perhaps the anxiety will disappear.
Many of the replies in this thread helped me shift my thinking and made it possible for me to take action. Thank you all.

smectym
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Re: Difficulty lnvesting a Windfall

Post by smectym » Fri Nov 01, 2019 8:20 am

There is nothing wrong with having anxiety about investing a windfall. Perfectly natural. The reason for the anxiety is that you’re afraid of losing money, at least on paper for for a protracted period, if you invest the lump sum all at once. And there is a reasonably good chance that that might happen—so your fear is not irrational.

So to deal with that anxiety issue and yet still get your funds into the market, I see little choice but to invest it piecemeal. if you don’t wish to think of it as dollar cost averaging then you don’t have to. 10% this month, 10% the next month or in three months: whatever schedule appeals and gets your money into the market. It could turn out that such a piecemeal strategy is beneficial and superior to lump sum, or maybe not; you’ll know that only in hindsight.

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Re: Difficulty lnvesting a Windfall

Post by Portfolio7 » Mon Nov 04, 2019 4:31 pm

optimpessim wrote:
Thu Oct 31, 2019 10:09 am
Just this morning I moved a sizeable amount from the Settlement Fund to Total Stock Market. It wasn't easy but already my anxiety level is much reduced! I will proceed following Portfolio7's example:
Portfolio7 wrote:
Tue Oct 29, 2019 11:10 pm
If the issue really rests with how quickly you buy into equities.... I'd just close my eyes and push the button. If you are having difficulty with that, you might prefer this method I've used: invest the maximum you feel safe investing immediately, but do it today!. A month from now do the same. Make yourself invest at least 10% per month, no excuses, but as much as 100%. Repeat on the same day each month (i.e. Oct 31, Nov 31) until fully invested. Once you are invested (and I suspect sooner than that), perhaps the anxiety will disappear.
Many of the replies in this thread helped me shift my thinking and made it possible for me to take action. Thank you all.
Glad this helped. I'm often reminded by my friends that the reality of a situation is generally so much less worrisome than the anticipation of it!
"An investment in knowledge pays the best interest" - Benjamin Franklin

james22
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Re: Difficulty lnvesting a Windfall

Post by james22 » Tue Nov 05, 2019 1:37 am

optimpessim wrote:
Tue Oct 29, 2019 8:38 pm
I am very comfortable with my AA which is roughly 60/40.
60/40 is 60/40 whatever the asset value.

shess
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Re: Difficulty lnvesting a Windfall

Post by shess » Tue Nov 05, 2019 3:13 am

optimpessim wrote:
Tue Oct 29, 2019 8:38 pm
I worked on a reply and then managed to lose it. I'm not adept at this. But I do want to say that I much appreciate the replies I received. I now realize I mislead some by not making clear that asset allocation is not the issue here. I am very comfortable with my AA which is roughly 60/40. The problem is my head that is fighting me. Special thanks to the following posts which are nudging me along the road to making a rational decision as to how to proceed.
I hear you. It's one thing to decide how to invest new dollars which will add .1% or even 5% to your portfolio - it's another thing to push the button when it's adding 100% or 2x of your yearly income to the portfolio!

The approach I have used against myself multiple times in situations like this is to decide what amount I'm comfortable with, and then plan to DCA that amount until done. This gets the process started, because I've found that in situations like this you can end up dilly-dallying around for quite some time, so it's important to start doing what you can do. Then, at least for me, after the second or third installment, I usually sit back and think "What am I doing?", and then just execute the entire rest of the transaction immediately.

I suspect you were doing fine before the windfall, and you'd have done fine if the windfall never happened. So IMHO any stress you take on worrying about whether you're investing the windfall "right" is unwarranted. Normal people don't just sit around worrying about how to invest a windfall "Just in case"! So IMHO, if it freaks you out, no need to forcibly resolve the issue. But also IMHO, you should try to develop a path to dealing with things that lets you sleep well, whether it's something like the above, or just putting it all in US Treasuries.

sf_tech_saver
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Re: Difficulty lnvesting a Windfall

Post by sf_tech_saver » Tue Nov 05, 2019 5:32 am

A 3-6 month DCA isn't crazy, esp in a turbulent time in the market...but put the money to work soon!

I bought over $1M in bonds as part of my AA after a windfall last fall/spring. Everyone was screaming that buying bonds was insanity as everyone KNEW rates were going up. This was only last October and prevailing wisdom was 100% wrong and instead, we saw the greatest rally in bond prices in recent memory.

Because markets were going down 1% daily in December I did step into the equities AA with weekly buys through mid-Jan. I could have tried to time the market and find the bottom but it bounced so fast I would have missed it entirely if I tried.

Its all in your head beyond a few months of reasonable DCA. I managed my head on this by saying "put the money to work, and then get back to work and go make more!" --focus on human capital and let your index driven AA do the money work for you.
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chevyman38829
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Re: Difficulty lnvesting a Windfall

Post by chevyman38829 » Wed Nov 06, 2019 10:14 pm

If you invest in a global allocation (a three fund index) there is no difference according to a Vanguard study because some assets are usually undervalued to make up for the overvalued ones but do all asset classes at one time.

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