Investment Advice - Lump sum investing

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
fishing74
Posts: 2
Joined: Wed Aug 08, 2018 11:39 am

Investment Advice - Lump sum investing

Post by fishing74 » Wed Aug 08, 2018 11:55 am

Hi all - I am fortunate to have a 250k lump sum to invest. I've read and read and read about lump sum investing vs DCA and how lump sum is the better approach most of the time. I've been sitting on this money since Feb 2018 of course thinking the market was in a down swing. Currently the majority of my brokerage assets are in FUSVX.

As for some background ... I am 43 and my wife is 40 with 2 kids (9 and 6). We both max out our 401ks and traditional IRAs. We invest $150 bi-weekly to FUSVX as well. We contribute $100 to kids college which we started before they were born so they're in good shape. We are currently paying about $500 extra on our mortgage which will be paid in 10 yrs.

Any advice is greatly appreciated!!!

mega317
Posts: 2471
Joined: Tue Apr 19, 2016 10:55 am

Re: Investment Advice - Lump sum investing

Post by mega317 » Wed Aug 08, 2018 1:20 pm

If you've truly done that much reading I don't know what additional advice you could receive here.

How about this: When you say lump sum is "better" I assume you mean has a higher expected return. But that's just math which doesn't account for behavior, and you have recently demonstrated sub-optimal investing behavior in response to a very mild and short-term stock decline. So I would recommend DCA for you. Or even more towards college or the mortgage might be better.

UpperNwGuy
Posts: 712
Joined: Sun Oct 08, 2017 7:16 pm
Location: Washington DC

Re: Investment Advice - Lump sum investing

Post by UpperNwGuy » Wed Aug 08, 2018 1:24 pm

fishing74 wrote:
Wed Aug 08, 2018 11:55 am
I've been sitting on this money since Feb 2018 of course thinking the market was in a down swing.
Not a good move! Get that money into the market immediately!

MotoTrojan
Posts: 1911
Joined: Wed Feb 01, 2017 8:39 pm

Re: Investment Advice - Lump sum investing

Post by MotoTrojan » Wed Aug 08, 2018 1:25 pm

I treat my decision to aggressively lump sum (regardless of dollar amount) similar to a 16 in blackjack. You need to decide what you are going to do for life and stick with it; sometimes it'll work great, sometimes it'll bite you. Indecisiveness or changing things without a pre-prescribed plan will cause behavioral issues at some point.

I also like to think of the $1M 401k analogy; someone who has $1M to invest from a windfall and lump sums is the same as someone who has accumulated $1M in a 401k (no tax-implications to move to cash/safe) and decides to remain invested. If you think it is a good idea to DCA that $1M windfall into the market, you should rationally also move your 401k into money market and then DCA it back into the market. Nobody does that though... it is all emotional.

I am a tinkerer by nature, so strictly getting money into the market as soon as possible has been helpful to keep me from making mistakes.

Also if you aren't familiar with tax-loss harvesting do some research. That may make you feel better if there is a downturn.

mega317
Posts: 2471
Joined: Tue Apr 19, 2016 10:55 am

Re: Investment Advice - Lump sum investing

Post by mega317 » Wed Aug 08, 2018 1:34 pm

MotoTrojan wrote:
Wed Aug 08, 2018 1:25 pm
I treat my decision to aggressively lump sum (regardless of dollar amount) similar to a 16 in blackjack.
Haha I love this. In your metaphor, who are the other players glaring at you if you take the dealer's 10?

megabad
Posts: 362
Joined: Fri Jun 01, 2018 4:00 pm

Re: Investment Advice - Lump sum investing

Post by megabad » Wed Aug 08, 2018 1:38 pm

I would invest in the manner that allows you to get the money where you want it to be the fastest. For me this is lump sum, but I don't really look at market pricing when I invest so I have no idea if it is up or down on any given day. I do this intentionally because I know I would be tempted to "time the market" otherwise. If you find yourself hesitating and looking at market pricing, automating the investing process thru DCA may help you to overcome our natural inclination to time the market.

jsprag
Posts: 18
Joined: Sun Nov 26, 2017 11:25 am

Re: Investment Advice - Lump sum investing

Post by jsprag » Wed Aug 08, 2018 1:59 pm

Do some of each, if that makes you feel better.

Invest $120K now and $2.5K per week for 52 weeks.
Or $50K towards house, $100K now, and $2K per week for 50 weeks.
Or....

pkcrafter
Posts: 12905
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Investment Advice - Lump sum investing

Post by pkcrafter » Wed Aug 08, 2018 2:45 pm

fishing74 wrote:
Wed Aug 08, 2018 11:55 am
Hi all - I am fortunate to have a 250k lump sum to invest. I've read and read and read about lump sum investing vs DCA and how lump sum is the better approach most of the time. I've been sitting on this money since Feb 2018 of course thinking the market was in a down swing. Currently the majority of my brokerage assets are in FUSVX.

As for some background ... I am 43 and my wife is 40 with 2 kids (9 and 6). We both max out our 401ks and traditional IRAs. We invest $150 bi-weekly to FUSVX as well. We contribute $100 to kids college which we started before they were born so they're in good shape. We are currently paying about $500 extra on our mortgage which will be paid in 10 yrs.

Any advice is greatly appreciated!!!
Welcome, reread mojo's post because he's nailed it. Don't let emotions play any role in your investing decisions. Total stock market has outperformed 80%+ of all investments over 20 year periods, but that is not what investors are actually netting. Tinkering and emotional moves do not improve returns, they reduce them. Fidelity has found that accounts with the best returns are the ones that appear to be abandoned.

In looking at your investments, you did not specify what your overall asset allocation is. Is it 100% stock? Instead of using FUSVX where you have options, consider FZROX, Fidelity's new zero expense ratio total stock market fund.



Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

indexonlyplease
Posts: 1149
Joined: Thu Apr 30, 2015 12:30 pm
Location: Pembroke Pines, FL

Re: Investment Advice - Lump sum investing

Post by indexonlyplease » Wed Aug 08, 2018 2:57 pm

jsprag wrote:
Wed Aug 08, 2018 1:59 pm
Do some of each, if that makes you feel better.

Invest $120K now and $2.5K per week for 52 weeks.
Or $50K towards house, $100K now, and $2K per week for 50 weeks.
Or....
I like the idea of speading the money out. Many here never have or will never have your good fortune to receive 250k. So, it is easy to state put the whole amount in all at one time. This is really easy for many to say since we have had a great 9 year run in the market.

Do what makes you feel ok that you will not go to cash if the market drops the day after you invest. You have been holding since February so this means you are hesitant. You cant go wrong with investing over a year and also paying down mortgage.

Do what will feel right even if the market drops 50% the day after you invest.

User avatar
Earl Lemongrab
Posts: 4949
Joined: Tue Jun 10, 2014 1:14 am

Re: Investment Advice - Lump sum investing

Post by Earl Lemongrab » Wed Aug 08, 2018 5:21 pm

I'm going to haul my usual blather on the subject. Absent taxes, there's no difference between not buying stocks and selling them. The stocks in my Roth IRA and 401(k) total over 400k. So today I decided to invest a lump sum of 400k into stocks. Yesterday I decided to invest a lump sum of 400k into stocks. Tomorrow I will invest a lump sum of 400k into stocks. Etc. Etc.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

JustinR
Posts: 672
Joined: Tue Apr 27, 2010 11:43 pm

Re: Investment Advice - Lump sum investing

Post by JustinR » Wed Aug 08, 2018 8:34 pm

What's your question?

Correct, lump sum is better than DCA.

MotoTrojan
Posts: 1911
Joined: Wed Feb 01, 2017 8:39 pm

Re: Investment Advice - Lump sum investing

Post by MotoTrojan » Wed Aug 08, 2018 9:39 pm

mega317 wrote:
Wed Aug 08, 2018 1:34 pm
MotoTrojan wrote:
Wed Aug 08, 2018 1:25 pm
I treat my decision to aggressively lump sum (regardless of dollar amount) similar to a 16 in blackjack.
Haha I love this. In your metaphor, who are the other players glaring at you if you take the dealer's 10?
All the Bogle members ripping people that have remained out of the market the last 3 years.

Lafder
Posts: 3749
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Investment Advice - Lump sum investing

Post by Lafder » Wed Aug 08, 2018 11:11 pm

The fact that you have waited this long tells me you will be very anxious if you invest lump sum!

You can moderate the risk by the % stocks/bonds you choose. Lump sum 100% stocks is different than lump sum 10% stocks, 90% bonds. Are you set on your desired AA ? Is there any amount you want to pay into your mortgage?

I would put x dollars to mortgage. Even if 10,000 $ or 50,000$ it is a guaranteed return of the interest rate of your mortgage, and no other investment will have such a guarantee. I think it should be in your equation of what you do, to pay some amount towards the mortgage. What is your balance? What is your interest rate? If paid off you can invest the equivalent of the mortgage payment each month so the investing does continue!

After you decide an amount to pay to the mortgage, pick an amount to invest now. Depending on what funds, do the minimum for the lower cost funds such as 10K/account of stocks, bond, international stock. Are you using a three fund portfolio or an all in one fund or want to continue just the one fund? (That would make ME nervous)

So lets say you pay 50k mortgage, 30k to open accounts, and have 170k to invest. I would pick a set number and do recurring investments on a weekly or bi monthly basis til you invest it all. You can adjust the investments to hit your desired AA. 1700/week would take almost 2 years to invest it all. 3269/week would take a year. You can drag it out as long as you like :) monthly is about 14,000$ etc

Let's say you hate my idea of paying down the mortgage at all. I like "round numbers" so I would pick an amount to open the accounts, and invest a chunk. Then divide the rest over the next 6-12 months til gone. Such as invest 60k tomorrow and then divide the 190k into 52 weekly or 26 biwekly, or 12 monthly, or weekly for only 10-20 purchases. I would feel better dividing it out. But I would feel nervous holding cash too long and might do weekly for 3 -6 months til gone.

FUSVX is a Fidelity SP 500 Index fund. What % bonds do you have in all accounts?

Let's talk where the new money is going. 100% stock fund would make me nervous, I would want to be sure there is some bond space to buffer drops which the cash is doing now but at no growth. I would do a minimum of 20% bonds. What do you want?

The above comments assume maxing retirement accounts. If not, use some of the cash for living expenses and max the retirement accounts. ? (back door) Roths? And what about a chunk to the kids college funds such as 5-10k. Do you use 529s? Some charge a fee per investment so better to do fewer bigger investments. My friends were putting away 50/pay period and realized 15$ of that was going to fees!

lafder

fishing74
Posts: 2
Joined: Wed Aug 08, 2018 11:39 am

Re: Investment Advice - Lump sum investing

Post by fishing74 » Thu Aug 09, 2018 8:22 am

Thanks everyone for the thoughtful replies. Very much appreciate the insight. Lots of opinions and plenty to think about for sure.

To answer the mortgage question ... balance is $209k at 4.125%, house is worth ~$550k. We're paying extra so it will be paid off in 10 yrs.

We do use 529 plans for both kids and contribute $100 per kid per month. That's a good question about fees, I will check.

Our AA is roughly 80/15/5 (stocks/cash/bonds). Cash is obviously high which was the reason for the post.

Thanks again!

Lafder
Posts: 3749
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Investment Advice - Lump sum investing

Post by Lafder » Fri Aug 10, 2018 8:50 am

I would pay off the mortgage!

That leaves you 41k to invest this month.

Plus the equivalent of the mortgage payment to invest every month. What will that be over the next ten years that you will have dollar cost averaged into the market? Do not think of "losing" the 209k if you pay off the mortgage. Think of gaining the payments as investments over the next ten years.

No where else can you get a guaranteed return of over 4%. Guaranteed means just that. Any stock investments are likely to have a big drop at some point. The mortgage balance only goes down if you pay against it :)

lafder

User avatar
Rick Ferri
Posts: 8483
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Investment Advice - Lump sum investing

Post by Rick Ferri » Fri Aug 10, 2018 7:22 pm

See my updated blog;

6 Ideas for Lump Sum Investing

Rick Ferri
The Education of an Index Investor: flounders in darkness, finds enlightenment, overcomplicates strategy, embraces simplicity.

Post Reply