All at once or bit by bit?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
geltman
Posts: 12
Joined: Wed Jul 12, 2017 2:11 am

All at once or bit by bit?

Post by geltman »

Hi,

I am in the process of moving cash (about $150,000) into VBIAX from a checking account. The question is, keeping the seemingly inflated market in mind, is it best to invest it all in one shot or better to invest it over a span of time, say $10,000-$20,000 per month or something like that? Any thoughts?
abner kravitz
Posts: 569
Joined: Tue May 05, 2015 7:42 am
Location: Beaufort County, SC

Re: All at once or bit by bit?

Post by abner kravitz »

I would do it all at once. You could get burned (investing is risky), but I think this maximizes your expected value.
User avatar
welderwannabe
Posts: 1220
Joined: Fri Jun 16, 2017 8:32 am

Re: All at once or bit by bit?

Post by welderwannabe »

If you do decide to dollar cost average, at least store the cash somewhere that earns more than your checking account.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
beardsworth
Posts: 2135
Joined: Fri Jun 15, 2007 4:02 pm

Re: All at once or bit by bit?

Post by beardsworth »

geltman, enter "lump sum DCA" in that search box at the top of each Bogleheads page, and you will find many previous discussions of this.

If this thread follows the trend of its many predecessors, the preponderance of posters will urge you to put the whole batch of money in at once.

I disagree. Dollar-cost averaging (bit by bit, as you put it) does not necessarily guarantee a superior investment result, but it makes fairly certain that you'll never be buying at the "worst" or "best" price. Instead, you'll get the average price across the period you were buying, especially if you buy frequently in small amounts.

A key factor, IMO, is also the element of regret. Stock markets have been on an almost continuous upward trend since 2009. Could they go higher? Of course. But how much regret will you feel if you put the whole amount in, all at once, and current prices turn out, with benefit of hindsight, to have been a peak? And, having put in a big lump sum, will you hang on if it falls, while you wait for a recovery whose timing can't be known? All sorts of psychological studies show that most people feel the pain of losses much more strongly than the pleasure of gains.

Dollar-cost averaging's main benefits, I think, are psychological. If you own a home, you had to commit to the entire purchase based on a single day's price. If you own a car, you bought it at a single day's price. And the same for any other expensive purchase. But there's another choice with financial assets whose values constantly fluctuate. I wouldn't even dollar-cost average as fast as the $10K-$20K per month envisioned in your original post. I'd go slower. But, as noted above, experience of other threads suggests this will be a minority viewpoint here.
User avatar
grabiner
Advisory Board
Posts: 29214
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: All at once or bit by bit?

Post by grabiner »

How much is $150,000 relative to your portfolio, and where did the $150,000 come from (was it previously invested)? These are two psychological issues which may affect whether you dollar-cost average, and how fast, since they affect how much your risk will change.

I don't like Balanced Index in a taxable account, because it locks you into an allocation; if you want to sell bonds, or hold a different type of bonds, or hold bonds in your 401(k) instead, you have to sell stocks at the same time and pay a capital-gains tax. Instead, it is better to hold separate stock and bond funds.

And if you do dollar-cost average, then separate funds have an additional advantage. You can put all the money in a bond fund right now, since that does not represent a significant change in risk, and then move, say, 10% per month for the next six months into a stock fund.

Finally, what is your tax bracket? If it is 28% or higher, and you do want to hold only one fund in your taxable account for simplicity, then it should be Tax-Managed Balanced Fund, as in a high tax bracket, municipal bonds have better after-tax returns for a comparable risk level.
Wiki David Grabiner
User avatar
jimb_fromATL
Posts: 2278
Joined: Sun Nov 10, 2013 12:00 pm
Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: All at once or bit by bit?

Post by jimb_fromATL »

Here are some real numbers to quantify the risk versus the reward for lump sum versus DCA depending on when you happened to start investing in the past. This is for VBINX, the investor share fund, which has a longer history and virtually identical results.

VBINX -- Vanguard Balanced Index Inv:

For 285 rolling 12 month periods from 10/1992 through 06/2017 a lump sum invested in VBINX did better than DCA for the same amount 80.4% of the time.

Average:
  • Lump sum investing has averaged 7.69%. A lump sum of $150,000 would have grown to an average of $161,945
    DCA investing has averaged 7.67%. Contributions of $12500 per month totaling $150,000. would have grown to an average of $156,378
Worst rolling periods
  • The worst lump sum had a loss of 27.68% of principal (-31.97% APY) at the end of 02/2009. The $150,000 would have been worth $108,484
    The worst DCA had a loss of 21.2% of principal ( -44.64% APY) at the end of 02/2009. The contributions totaling $150,000 would have been worth $118,246.
Best periods
  • The best lump sum had an APY of 31.3% at the end of 02/2010 and would have been worth $204,310
    The best DCA period had an APY of 31.18% at the end of 07/1997 and would have been worth $177,909
So ... looks like DCA reduces your potential of loss in a short time in exchange for virtually guaranteeing less gain about 80% of the time.
delamer
Posts: 10912
Joined: Tue Feb 08, 2011 6:13 pm

Re: All at once or bit by bit?

Post by delamer »

welderwannabe wrote:If you do decide to dollar cost average, at least store the cash somewhere that earns more than your checking account.
Another way of looking at this is that you are missing out on dividends and interest when you are out of the market. Dividends are a significant component of the total return for stocks.
tibbitts
Posts: 12935
Joined: Tue Feb 27, 2007 6:50 pm

Re: All at once or bit by bit?

Post by tibbitts »

geltman wrote:Hi,

I am in the process of moving cash (about $150,000) into VBIAX from a checking account. The question is, keeping the seemingly inflated market in mind, is it best to invest it all in one shot or better to invest it over a span of time, say $10,000-$20,000 per month or something like that? Any thoughts?
Please don't post symbols without the fund name. If this is a taxable account you might not want to invest in VBIAX at all, and even if you do, you may not want to DCA stocks at the same pace as bonds.The market for stocks and bonds has been inflated for years and years, and so far not being invested hasn't turned out well. We don't know if it will going forward.

People may have different opinions depending on where the money came from.

My feelings on DCA were different when I was earning 3% real in near-cash than they are now.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: All at once or bit by bit?

Post by PFInterest »

both. 1/2 now, then the other half over 6 months.
User avatar
ruralavalon
Posts: 20608
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: All at once or bit by bit?

Post by ruralavalon »

As I posted in your other thread, I suggest investing all at once rather than in stages. Read the links I gave you. Just get it over with.

Keep an aggressive job search as your top priority.

In your situation don't worry a lot about tax-efficiency.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
iceport
Posts: 4666
Joined: Sat Apr 07, 2007 4:29 pm

Re: All at once or bit by bit?

Post by iceport »

grabiner wrote:How much is $150,000 relative to your portfolio, and where did the $150,000 come from (was it previously invested)? These are two psychological issues which may affect whether you dollar-cost average, and how fast, since they affect how much your risk will change.

I don't like Balanced Index in a taxable account, because it locks you into an allocation; if you want to sell bonds, or hold a different type of bonds, or hold bonds in your 401(k) instead, you have to sell stocks at the same time and pay a capital-gains tax. Instead, it is better to hold separate stock and bond funds.

And if you do dollar-cost average, then separate funds have an additional advantage. You can put all the money in a bond fund right now, since that does not represent a significant change in risk, and then move, say, 10% per month for the next six months into a stock fund.
Excellent advice, all around.
"Discipline matters more than allocation.” ─William Bernstein
kathyauburn
Posts: 192
Joined: Thu May 07, 2015 12:25 pm

Re: All at once or bit by bit?

Post by kathyauburn »

A like a combined approach. Put in half now and then DCA the rest. Or better yet, put in half and then add to it only when the market turns down a certain percentage--say, 5%. That way, you're actually *hoping* for a pullback or another 50% retracement like we had in 2008.

There's nothing wrong with holding a couple/few years of cash.
Post Reply