S&P500 52 week high, Hold, DCA, or Invest lump sums

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bubbasour
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S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by bubbasour » Sat Nov 09, 2019 8:26 am

Hi,

I seek some guidance from more experienced investors around investing lump sums in these times. I understand that as Bogleheads we are not trying to time the market.

Noticing the trends where S&P500 seems be hitting new highs, is this potentially "a more risky" time to invest than other times? My guess is that if I look at a horizon, 5-15 years from now, does it really make any difference if I do lump sum investment now even if there were to be negative fluctuations ahead?

I have some cash parked on IB right now, and wasn't sure whether to just go ahead and invest everything in my usual VUSD (Ireland Domiciled VOO), or if I should let it remain as idle Cash, or whether to install in a FD, short term bond? For the latter, is there any FD/short-term bond capabilities or recommendations in the IB platform that are worth looking into for parking cash?

appreciate any pointers, thanks! bubba
NRA, Prefer VUSD (VOO) and VWRD (VT), No capital gain tax.

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Tamarind
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by Tamarind » Sat Nov 09, 2019 8:36 am

I would say that all times in the stock market are similarly risky. Most of the known risk is priced in. What's missing and could affect you is the events that are not yet known - i.e business fraud, liquidity crisis, surprise geopolitical conflict, discovery of incoming asteroid.

But remember any public information about Brexit, Kashmir, or the repo rate is already mostly priced in. You would be judging whether it was more likely for an unexpected event to occur today than it was 6 months ago or 2 years from now, and you really have no information to help you make that decision unless you have a relative who is both 1) a diplomat, corporate controller, etc and 2) really bad at the confidentiality part of their job.

I think this argues for lump-summing at an asset allocation that takes into account your tolerance for future loss. Consider adding more bonds.

student
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by student » Sat Nov 09, 2019 8:42 am

What is your desired asset allocation? If it calls for more equity, then I would invest DCA for psychological reasons.

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JoMoney
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by JoMoney » Sat Nov 09, 2019 8:47 am

Perhaps you need a balanced portfolio that includes some cash/bonds that you will "rebalance" with, and has an effect similar to dollar cost averaging.
If you're going to have a heavy stock portfolio, you will have to be comfortable with bearing the risk of having that money in stocks at some point, and you're going to spend quite a bit of time watching that investment make all time highs (hopefully).
The bulk of my money is in stocks (the S&P 500 specifically) and I'm not pulling it out to try and DCA back in expecting it will lead to higher returns.
The expectation is that stocks will go higher, that's why we invest. So far that has been the long-term trend, and even if you got in at all time highs, it's gone higher. Usually getting your money in sooner rather than later has lead to higher returns.
That said, most of money was invested through periodic investing like DCA, and it does make me feel a bit better knowing my cost basis was an average over a long period of time. There are people who have advocated to "mortgage your retirement", suggesting even those that would only be able contribute paycheck to paycheck lump in with borrowed money. There is/was one infamously badly timed story of this that played out here on Bogleheads: viewtopic.php?t=5934
Last edited by JoMoney on Sat Nov 09, 2019 8:55 am, edited 1 time in total.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

HomeStretch
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by HomeStretch » Sat Nov 09, 2019 8:52 am

Markets hit new highs often. Don’t let concerns about market highs keep you from investing. You can choose to invest lump sum or dollar cost average (DCA). It’s a personal decision. My preference is lump-sum.

Here’s a Vanguard paper on lump sum vs DCA that (paraphrasing a bit) concludes it’s prudent under certain assumptions to lump sum invest to gain access to markets as soon as possible, but acknowledges that for the investor concerned with managing risk and minimizing regret, DCA may be of use:
https://personal.vanguard.com/pdf/ISGDCA.pdf

Here’s a Kitces article that (paraphrasing a bit) says DCA (as compared to lump sum) may help manage risks but on average just reduces returns:
https://www.kitces.com/blog/dollar-cost ... s-returns/

ETA updated Vanguard link (thanks, oogZoo)
Last edited by HomeStretch on Sat Nov 09, 2019 1:42 pm, edited 1 time in total.

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bubbasour
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by bubbasour » Sat Nov 09, 2019 9:14 am

student wrote:
Sat Nov 09, 2019 8:42 am
What is your desired asset allocation? If it calls for more equity, then I would invest DCA for psychological reasons.
Hi student, I'm in my late 30s and this is my current allocation. I know it may be argued to be too conservative, but knowing myself my risk tolerance is quite low. :|

Recently, as I have gained more experience in investing, I have started to swing over some of my FDs as the matured to VUSD.

Are there any short term bonds, or FD like instruments I can consider with IB?

Code: Select all

Equity (VUSD, VWRD)	32.4%
Bonds (Gov), T-bills, FD, Cash 67.6%
NRA, Prefer VUSD (VOO) and VWRD (VT), No capital gain tax.

Schlabba
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by Schlabba » Sat Nov 09, 2019 9:28 am

bubbasour wrote:
Sat Nov 09, 2019 8:26 am
Hi,

I seek some guidance from more experienced investors around investing lump sums in these times. I understand that as Bogleheads we are not trying to time the market.

Noticing the trends where S&P500 seems be hitting new highs, is this potentially "a more risky" time to invest than other times? My guess is that if I look at a horizon, 5-15 years from now, does it really make any difference if I do lump sum investment now even if there were to be negative fluctuations ahead?

I have some cash parked on IB right now, and wasn't sure whether to just go ahead and invest everything in my usual VUSD (Ireland Domiciled VOO), or if I should let it remain as idle Cash, or whether to install in a FD, short term bond? For the latter, is there any FD/short-term bond capabilities or recommendations in the IB platform that are worth looking into for parking cash?

appreciate any pointers, thanks! bubba
Meet Bob, the worst market timer: https://awealthofcommonsense.com/2014/0 ... ket-timer/
And also look at the last "fear" on this page: https://www.visualcapitalist.com/7-fact ... t-crashes/

Edit: Also the "final thought" in the infographic.
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

Ferdinand2014
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by Ferdinand2014 » Sat Nov 09, 2019 10:24 am

bubbasour wrote:
Sat Nov 09, 2019 8:26 am
Hi,

I seek some guidance from more experienced investors around investing lump sums in these times. I understand that as Bogleheads we are not trying to time the market.

Noticing the trends where S&P500 seems be hitting new highs, is this potentially "a more risky" time to invest than other times? My guess is that if I look at a horizon, 5-15 years from now, does it really make any difference if I do lump sum investment now even if there were to be negative fluctuations ahead?
Active
I have some cash parked on IB right now, and wasn't sure whether to just go ahead and invest everything in my usual VUSD (Ireland Domiciled VOO), or if I should let it remain as idle Cash, or whether to install in a FD, short term bond? For the latter, is there any FD/short-term bond capabilities or recommendations in the IB platform that are worth looking into for parking cash?

appreciate any pointers, thanks! bubba
The U.S. stock market reaches an all time high 6.7% of all trading days. The average 12 months performance is 8.7% post an all time high. 30% of the time a negative return follows the next 12 months. 32% of the time negative over the next 5 years. Those are facts. Not predictors. Using all time highs as a predictor of the market being more risky history has shown to be a poor predictor.



1915-2015 DJIA data.

https://awealthofcommonsense.com/2014/0 ... ket-timer/
Last edited by Ferdinand2014 on Sat Nov 09, 2019 10:27 am, edited 1 time in total.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

hithere
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by hithere » Sat Nov 09, 2019 10:24 am

Personally, bonds are dead to me. I only invest in stocks and P2P loans. P2P is supposed to be the less volatile portion of my portfolio and as an added bonus, the returns are quite good. My ultimate asset allocation is 100% stocks, but I will only move money from P2P to stocks when the stock valuations become more reasonable.

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Brianmcg321
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by Brianmcg321 » Sat Nov 09, 2019 11:03 am

Lump it.

Time in the market is more valuable than timing the market.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

oogZoo
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by oogZoo » Sat Nov 09, 2019 12:06 pm

HomeStretch wrote:
Sat Nov 09, 2019 8:52 am
Here’s a Vanguard paper on lump sum vs DCA that (paraphrasing a bit) concludes it’s prudent under certain assumptions to lump sum invest to gain access to markets as soon as possible, but acknowledges that for the investor concerned with managing risk and minimizing regret, DCA may be of use:
https://personal.vanguard.com/pdf/s315.pdf
That link does not work (at least for me). "We're sorry. The page you requested could not be found."

I think this is the same document: https://personal.vanguard.com/pdf/ISGDCA.pdf

BogleBoogie
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Location: AK

Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by BogleBoogie » Sat Nov 09, 2019 12:10 pm

bubbasour wrote:
Sat Nov 09, 2019 9:14 am
student wrote:
Sat Nov 09, 2019 8:42 am
What is your desired asset allocation? If it calls for more equity, then I would invest DCA for psychological reasons.
Hi student, I'm in my late 30s and this is my current allocation. I know it may be argued to be too conservative, but knowing myself my risk tolerance is quite low. :|

Recently, as I have gained more experience in investing, I have started to swing over some of my FDs as the matured to VUSD.

Are there any short term bonds, or FD like instruments I can consider with IB?

Code: Select all

Equity (VUSD, VWRD)	32.4%
Bonds (Gov), T-bills, FD, Cash 67.6%
I applaud you for KNOWING yourself to guide you to YOUR personal AA. Who cares who argues what, don't let that get in the way of your plan. If you can sleep well and stick with that plan, you are much better off than having an aggressive AA and freaking out when the market dips and make irrational, emotional decisions. Over the long haul, you'll do very well and that's all that matters.

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bligh
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by bligh » Sat Nov 09, 2019 12:24 pm

bubbasour wrote:
Sat Nov 09, 2019 8:26 am
Noticing the trends where S&P500 seems be hitting new highs, is this potentially "a more risky" time to invest than other times? My guess is that if I look at a horizon, 5-15 years from now, does it really make any difference if I do lump sum investment now even if there were to be negative fluctuations ahead?
I am no trend follower but, if you really do want to market time, here is a thought for you: The market hitting new highs is actually a bullish sign, it means the bull is on the run. The market hitting new lows means it might make sense to wait since the market is headed down and it might make more sense to buy in later at a cheaper price.

Having said that, do not try to time the market. When the market is heading higher you will worry about buying in too high and dealing with the inevitable crash. When the market is heading lower you will worry about the market continuing to head down and whether it makes sense to wait and get your stocks even cheaper a month from now. When I converted over to being a boglehead a few years ago, I was convinced the market was going to crash soon (we were at all time highs back then too). I overcame my hesitation by keeping the size of my "portfolio" in mind instead of my "profits". I decided that if the market is going up... great, it swells my portfolio. If the market is going down, I need to buy with both hands and do my best to keep my portfolio from shrinking. I am trying to hit a specific number at which I will consider myself financially independent. Whether I get there through contributions or through market returns.. the goal is the same.

We all know a bear market or a crash will come, no one knows when, how long it will last, or how deep its market bottom will be. We could go our entire lives without the stocks ever being this cheap again, or we could go our entire lives without the market ever reaching this high point again. Don't try to predict the future, because you can't. Just pick an asset allocation that lets you sleep well at night, diversifies your assets, that takes bear markets and potential market crashes into account, dive in and stay the course.

mega317
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Re: S&P500 52 week high, Hold, DCA, or Invest lump sums

Post by mega317 » Sat Nov 09, 2019 4:08 pm

bubbasour wrote:
Sat Nov 09, 2019 8:26 am
I understand that as Bogleheads we are not trying to time the market.

Noticing the trends where S&P500 seems be hitting new highs, is this potentially "a more risky" time to invest than other times?
Do you see how the second quoted sentence is in direct conflict with the first? You even used the word you just said we won't be doing.

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