Lump Sum Investment vs. Current Market Rally

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Topic Author
Manque
Posts: 3
Joined: Mon Dec 02, 2019 3:00 am

Lump Sum Investment vs. Current Market Rally

Post by Manque » Mon Dec 02, 2019 3:26 am

Hi Bogleheads,

To cut to the chase, I have a large lump sum to invest in index funds (150k+) for my retirement. I don’t have any ongoing investments at the moment so this is my critical first step. I have a proposed portfolio of 60% equity, 40% bonds.

However, with all of these news stories about the market rallying and hitting all-time highs, it makes me scared to make the initial jump, though I understand the importance of getting skin in the game. My thinking being that if something, anything, happens to the market, then I will be playing catch-up for the next decade. Monetary easing is spreading across the globe, negative interest rates, trade troubles, seems we are going to be in low-growth mode for awhile... if I make a mistake now, I feel like I’m going to be dragged through the mud forever.

Anyone else been in a similar situation?

Silk McCue
Posts: 3413
Joined: Thu Feb 25, 2016 7:11 pm

Re: Lump Sum Investment vs. Current Market Rally

Post by Silk McCue » Mon Dec 02, 2019 8:34 am

Welcome to Bogleheads!

We have a great supply of existing threads on this subject, including recent ones. The search bar is an excellent way to quickly find the opinions on numerous topics including this one.

viewtopic.php?t=296093

If you had $150k invested in the market today would you sell it and then DCA back in to the markets because of concerns about possible market declines? If not, then invest today at 60/40 (a very reasonable multi-purpose Asset Allocation).

Please take time to read this Wiki regarding Windfalls to see what may apply to your situation.

https://www.bogleheads.org/wiki/Managing_a_windfall

Cheers

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Brianmcg321
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Re: Lump Sum Investment vs. Current Market Rally

Post by Brianmcg321 » Mon Dec 02, 2019 8:40 am

If you had invested at the market high in 2007, it would have taken less than 3 years to recoup your losses. And that would be at a 100% equity portfolio.

Just invest it at your current AA OF 60/40. Stop listening to the news. They don't know what they are talking about anyway.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

retiredjg
Posts: 38447
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Re: Lump Sum Investment vs. Current Market Rally

Post by retiredjg » Mon Dec 02, 2019 8:40 am

Don't worry about the "rally". The market spends most of its time at or near "all time highs". Many people don't realize that, but it is easy to see if you look at a chart.

Invest your money. The market will do what it does. Your other choice is not to invest and that is not a particularly good choice as you will lose spending power to inflation.

If you simply cannot do it, invest half now and get the rest into the market within 6 months.

livesoft
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Re: Lump Sum Investment vs. Current Market Rally

Post by livesoft » Mon Dec 02, 2019 8:52 am

I am not in that situation.

But surely you can buy your 40% in bonds today, right? Let me know if that it your plan this morning.

After all, if you fear a large drop (you should expect small drops, so you should have absolutely no fear of them), that's when bonds will probably go up. Thus, you have no excuse not to complete your bond fund transaction in the next hour or so.
Wiki This signature message sponsored by sscritic: Learn to fish.

MotoTrojan
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Re: Lump Sum Investment vs. Current Market Rally

Post by MotoTrojan » Mon Dec 02, 2019 8:58 am

If you had $1.5M in a 401k that grew over decades would you leave it invested? If so, lump sum this because the situations are no different.

Make a plan for tax-loss harvesting too.

dbr
Posts: 30798
Joined: Sun Mar 04, 2007 9:50 am

Re: Lump Sum Investment vs. Current Market Rally

Post by dbr » Mon Dec 02, 2019 9:37 am

Manque wrote:
Mon Dec 02, 2019 3:26 am

Anyone else been in a similar situation?
Here are a few thousand posts on the issue of being afraid to jump into the market: https://www.google.com/search?sitesearc ... .org&q=dca

Discussion of the topic of investing a windfall may also be helpful: https://www.bogleheads.org/wiki/Managing_a_windfall
and https://www.google.com/search?q=windfal ... 36&bih=752

DarkHelmetII
Posts: 421
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Re: Lump Sum Investment vs. Current Market Rally

Post by DarkHelmetII » Mon Dec 02, 2019 9:40 am

retiredjg wrote:
Mon Dec 02, 2019 8:40 am
If you simply cannot do it, invest half now and get the rest into the market within 6 months.
:thumbsup

Olemiss540
Posts: 1134
Joined: Fri Aug 18, 2017 8:46 pm

Re: Lump Sum Investment vs. Current Market Rally

Post by Olemiss540 » Mon Dec 02, 2019 9:40 am

Is this your only retirement investment? Are you going to be adding new funds to it over the years?

It's hard to tell what your goals and how far along you are in this process which would really help with any advice. If you are looking to grow the funds for the next 20 years+ than time in the market beats timing the market a bulk majority of the time. If you want to ensure you preserve this piece of capital than consider an Asset Allocation that will allow you to be comfortable putting the chips on the table even if there were to be a downturn next week.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

KingRiggs
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Location: Indiana

Re: Lump Sum Investment vs. Current Market Rally

Post by KingRiggs » Mon Dec 02, 2019 9:45 am

I’m kinda looking forward to the next market crash so we can switch from “lump sum or DCA in this high market” posts to “Is this the bottom? Should I sell now? Or buy now?” posts... :shock:
Advice = noun | Advise = verb | | Roth, not ROTH

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David Jay
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Re: Lump Sum Investment vs. Current Market Rally

Post by David Jay » Mon Dec 02, 2019 11:31 am

1. Buy $60K in an intermediate bond fund today
2. Buy $15K in a total market stock fund today
3. Buy $15K in a total market stock fund on January 2
4. Buy $15K in a total market stock fund on February 3
5. Buy $15K in a total market stock fund on March 2
6. Buy $15K in a total market stock fund on April 1
7. Buy $15K in a total market stock fund on May 1
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Topic Author
Manque
Posts: 3
Joined: Mon Dec 02, 2019 3:00 am

Re: Lump Sum Investment vs. Current Market Rally

Post by Manque » Tue Dec 03, 2019 7:28 am

Olemiss540 wrote:
Mon Dec 02, 2019 9:40 am
Is this your only retirement investment? Are you going to be adding new funds to it over the years?

It's hard to tell what your goals and how far along you are in this process which would really help with any advice. If you are looking to grow the funds for the next 20 years+ than time in the market beats timing the market a bulk majority of the time. If you want to ensure you preserve this piece of capital than consider an Asset Allocation that will allow you to be comfortable putting the chips on the table even if there were to be a downturn next week.
Thank you all for your advice/insight.

Some quick responses to points mentioned and more information about my situation. Maybe it will give more perspective.
- This investment is my personal retirement fund. Separate to this, I have a company provided Defined Contribution Plan (approx. USD 400 monthly)
- These funds are my savings after 4 or so years of working and represent the entirety of my retirement savings, separate from an emergency fund
- I live in a country where it is unclear if my pension will be receivable at 65, the age keeps going up; this retirement fund has to support me in old age
- I intend to contribute monthly after making the initial buy-in
- Time to retirement approx. 35 years from now

The general opinion here seems to be that this 'all-time high' is just another uptick on a trend which, though it has its downturns, should be able to go up and up on the long-term. Come what may in the next few years, eventually we will pull up again. While part of me agrees this theory is sound (or I wouldn't be interested in index fund investing), I can't quite get 100% onboard with it given some factors we have not dealt with directly previously becoming more and more important: climate change, negative interest rates, wealth inequality, or other more interesting theories like index funds becoming too popular and affecting the corporate governance of the companies contained within them as the primary index holders (BlackRock, Vanguard, StateStreet) don't typically exercise their board privileges to criticize the companies they are indexing (Michael Burry Bloomberg article), etc. We are always told past performance is not an indicator for future performance so I am weary on just accepting, 'it will go up!'. Still stewing...

I appreciate everyone's time, thank you.

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JoeRetire
Posts: 3866
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Re: Lump Sum Investment vs. Current Market Rally

Post by JoeRetire » Tue Dec 03, 2019 7:41 am

Manque wrote:
Mon Dec 02, 2019 3:26 am
To cut to the chase, I have a large lump sum to invest in index funds (150k+) for my retirement. I don’t have any ongoing investments at the moment so this is my critical first step. I have a proposed portfolio of 60% equity, 40% bonds.

However, with all of these news stories about the market rallying and hitting all-time highs, it makes me scared to make the initial jump, though I understand the importance of getting skin in the game. My thinking being that if something, anything, happens to the market, then I will be playing catch-up for the next decade. Monetary easing is spreading across the globe, negative interest rates, trade troubles, seems we are going to be in low-growth mode for awhile... if I make a mistake now, I feel like I’m going to be dragged through the mud forever.
Keep your 150k+ on the sidelines making nothing until your fear eases.
Don't be a lemming.

Olemiss540
Posts: 1134
Joined: Fri Aug 18, 2017 8:46 pm

Re: Lump Sum Investment vs. Current Market Rally

Post by Olemiss540 » Tue Dec 03, 2019 1:41 pm

Manque wrote:
Tue Dec 03, 2019 7:28 am
Olemiss540 wrote:
Mon Dec 02, 2019 9:40 am
Is this your only retirement investment? Are you going to be adding new funds to it over the years?

It's hard to tell what your goals and how far along you are in this process which would really help with any advice. If you are looking to grow the funds for the next 20 years+ than time in the market beats timing the market a bulk majority of the time. If you want to ensure you preserve this piece of capital than consider an Asset Allocation that will allow you to be comfortable putting the chips on the table even if there were to be a downturn next week.
Thank you all for your advice/insight.

Some quick responses to points mentioned and more information about my situation. Maybe it will give more perspective.
- This investment is my personal retirement fund. Separate to this, I have a company provided Defined Contribution Plan (approx. USD 400 monthly)
- These funds are my savings after 4 or so years of working and represent the entirety of my retirement savings, separate from an emergency fund
- I live in a country where it is unclear if my pension will be receivable at 65, the age keeps going up; this retirement fund has to support me in old age
- I intend to contribute monthly after making the initial buy-in
- Time to retirement approx. 35 years from now

The general opinion here seems to be that this 'all-time high' is just another uptick on a trend which, though it has its downturns, should be able to go up and up on the long-term. Come what may in the next few years, eventually we will pull up again. While part of me agrees this theory is sound (or I wouldn't be interested in index fund investing), I can't quite get 100% onboard with it given some factors we have not dealt with directly previously becoming more and more important: climate change, negative interest rates, wealth inequality, or other more interesting theories like index funds becoming too popular and affecting the corporate governance of the companies contained within them as the primary index holders (BlackRock, Vanguard, StateStreet) don't typically exercise their board privileges to criticize the companies they are indexing (Michael Burry Bloomberg article), etc. We are always told past performance is not an indicator for future performance so I am weary on just accepting, 'it will go up!'. Still stewing...

I appreciate everyone's time, thank you.
Precisely. My best advice in your shoes would be to be pragmatic. Hang around this forum for a few months and read every day. In a few months, you will be ready to stomach investing and know the best investment is a long term one, not a well timed one.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Wiggums
Posts: 1922
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Re: Lump Sum Investment vs. Current Market Rally

Post by Wiggums » Tue Dec 03, 2019 3:44 pm

I automated my weekly purchases and I ignore the financial news. You have a reasonable asset allocation. I agree with the suggestion that your first move should be to purchase bonds.

There is not perfect portfolio and it’s impossible to know the market top or bottom. Obviously if you are not yet comfortable, I would not buy equities until you are ready. The markets go up and down. you need to be ok with that.

My kids have a similar asset allocation and their portfolio has done well over the past 20 years. the market generally moves higher but there are down days. Paper losses don’t matter.

I’m a big fan of automating the purchases and then not checking my account all the time. Some people use Vanguard PAS because they want someone else to pull the trigger. You need to figure out what works for you.

Good luck to you.

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ruralavalon
Posts: 16683
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Lump Sum Investment vs. Current Market Rally

Post by ruralavalon » Tue Dec 03, 2019 5:34 pm

Welcome to the forum :) .

What sort of account will you be using?

Are you eligible to contribute to a Roth IRA?

Are you eligible to deduct contributions to a traditional IRA?

What is your age?

What type of Defined Contribution plan is that (401k, 403b, 457b, SIMPLE IRA, TSP)? Your current $400/mo is only $4,800 per year, much less than is permitted.

I suggest increasing your payroll deduction to contribute the annual employee maximum ($19.5k/yr for most DC plans if under age 50) to the Defined Contribution Plan, then draw from your savings to fund living expenses that you would otherwise have funded from your paycheck.

If eligible then contribute the annual maximum ($6.5k/yr if under age 50) to an IRA at a low cost provider like Vanguard or Fidelity.

Manque wrote:
Mon Dec 02, 2019 3:26 am
Hi Bogleheads,

To cut to the chase, I have a large lump sum to invest in index funds (150k+) for my retirement. I don’t have any ongoing investments at the moment so this is my critical first step. I have a proposed portfolio of 60% equity, 40% bonds.

However, with all of these news stories about the market rallying and hitting all-time highs, it makes me scared to make the initial jump, though I understand the importance of getting skin in the game. My thinking being that if something, anything, happens to the market, then I will be playing catch-up for the next decade. Monetary easing is spreading across the globe, negative interest rates, trade troubles, seems we are going to be in low-growth mode for awhile... if I make a mistake now, I feel like I’m going to be dragged through the mud forever.

Anyone else been in a similar situation?
Manque wrote:
Tue Dec 03, 2019 7:28 am
Some quick responses to points mentioned and more information about my situation. Maybe it will give more perspective.
- This investment is my personal retirement fund. Separate to this, I have a company provided Defined Contribution Plan (approx. USD 400 monthly)
- These funds are my savings after 4 or so years of working and represent the entirety of my retirement savings, separate from an emergency fund
- I live in a country where it is unclear if my pension will be receivable at 65, the age keeps going up; this retirement fund has to support me in old age
- I intend to contribute monthly after making the initial buy-in
- Time to retirement approx. 35 years from now

The general opinion here seems to be that this 'all-time high' is just another uptick on a trend which, though it has its downturns, should be able to go up and up on the long-term. Come what may in the next few years, eventually we will pull up again. While part of me agrees this theory is sound (or I wouldn't be interested in index fund investing), I can't quite get 100% onboard with it given some factors we have not dealt with directly previously becoming more and more important: climate change, negative interest rates, wealth inequality, or other more interesting theories like index funds becoming too popular and affecting the corporate governance of the companies contained within them as the primary index holders (BlackRock, Vanguard, StateStreet) don't typically exercise their board privileges to criticize the companies they are indexing (Michael Burry Bloomberg article), etc. We are always told past performance is not an indicator for future performance so I am weary on just accepting, 'it will go up!'. Still stewing...

I appreciate everyone's time, thank you.
Lump sum or in stages? There is much discussion here about the two approaches. I am in the invest it "all at once" camp. When investing a large chunk of new money, "all at once" works out better about 2/3 of the time. Please see the Vanguard paper, "Dollar-cost averaging just means taking risk later".

Wiki article, "Dollar-cost averaging". “Lump sum investing will always carries [sic] a higher expected return, because it immediately moves your funds from asset classes with lower expected returns to ones with higher expected returns. Note that higher expected returns do not guarantee that your actual returns will be higher. According to an investopedia article, studies indicate that lump sum investing has produced higher returns 66% of the time”.

Here is another interesting article to read -- "What if you only invested at market peaks?"

Holding on to cash while you wait for a better time to invest is likely to give you a negative real return net of inflation and taxes. I think it is better to invest in something with the reasonable prospect of a positive real return. Market timing (waiting for a good time to buy) is a fool's errand. No one can successfully do that consistently. If you wait for a good day to buy, you will never know if the next day, or the next week, or the next month, or even the next year might be an even better time to buy.

It was always my policy to invest whenever I had money available to invest.

The compromise solution is to invest part in a lump sum now, and the rest in stages. For example invest 50% in a lump sum now, and invest the other 50% in stages (like an additional 10% on a predetermined date each month for the next 5 months). Don't needlessly agonize over when the best time may be to invest.

The factors you list, "factors we have not dealt with directly previously becoming more and more important: climate change, negative interest rates, wealth inequality, or other more interesting theories like index funds becoming too popular and affecting the corporate governance . . ." are actually pretty commonplace, and not very novel or unusual in my opinion. That is just noise; you could have heard similar comments 10-15 years ago.

I suggest that you read one or two books on investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below. A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
Manque
Posts: 3
Joined: Mon Dec 02, 2019 3:00 am

Re: Lump Sum Investment vs. Current Market Rally

Post by Manque » Wed Dec 04, 2019 5:06 am

ruralavalon wrote:
Tue Dec 03, 2019 5:34 pm
Welcome to the forum :) .

What sort of account will you be using?

Are you eligible to contribute to a Roth IRA?

Are you eligible to deduct contributions to a traditional IRA?

What is your age?

What type of Defined Contribution plan is that (401k, 403b, 457b, SIMPLE IRA, TSP)? Your current $400/mo is only $4,800 per year, much less than is permitted.

I suggest increasing your payroll deduction to contribute the annual employee maximum ($19.5k/yr for most DC plans if under age 50) to the Defined Contribution Plan, then draw from your savings to fund living expenses that you would otherwise have funded from your paycheck.

If eligible then contribute the annual maximum ($6.5k/yr if under age 50) to an IRA at a low cost provider like Vanguard or Fidelity.

Manque wrote:
Mon Dec 02, 2019 3:26 am
Hi Bogleheads,

To cut to the chase, I have a large lump sum to invest in index funds (150k+) for my retirement. I don’t have any ongoing investments at the moment so this is my critical first step. I have a proposed portfolio of 60% equity, 40% bonds.

However, with all of these news stories about the market rallying and hitting all-time highs, it makes me scared to make the initial jump, though I understand the importance of getting skin in the game. My thinking being that if something, anything, happens to the market, then I will be playing catch-up for the next decade. Monetary easing is spreading across the globe, negative interest rates, trade troubles, seems we are going to be in low-growth mode for awhile... if I make a mistake now, I feel like I’m going to be dragged through the mud forever.

Anyone else been in a similar situation?
Manque wrote:
Tue Dec 03, 2019 7:28 am
Some quick responses to points mentioned and more information about my situation. Maybe it will give more perspective.
- This investment is my personal retirement fund. Separate to this, I have a company provided Defined Contribution Plan (approx. USD 400 monthly)
- These funds are my savings after 4 or so years of working and represent the entirety of my retirement savings, separate from an emergency fund
- I live in a country where it is unclear if my pension will be receivable at 65, the age keeps going up; this retirement fund has to support me in old age
- I intend to contribute monthly after making the initial buy-in
- Time to retirement approx. 35 years from now

The general opinion here seems to be that this 'all-time high' is just another uptick on a trend which, though it has its downturns, should be able to go up and up on the long-term. Come what may in the next few years, eventually we will pull up again. While part of me agrees this theory is sound (or I wouldn't be interested in index fund investing), I can't quite get 100% onboard with it given some factors we have not dealt with directly previously becoming more and more important: climate change, negative interest rates, wealth inequality, or other more interesting theories like index funds becoming too popular and affecting the corporate governance of the companies contained within them as the primary index holders (BlackRock, Vanguard, StateStreet) don't typically exercise their board privileges to criticize the companies they are indexing (Michael Burry Bloomberg article), etc. We are always told past performance is not an indicator for future performance so I am weary on just accepting, 'it will go up!'. Still stewing...

I appreciate everyone's time, thank you.
Lump sum or in stages? There is much discussion here about the two approaches. I am in the invest it "all at once" camp. When investing a large chunk of new money, "all at once" works out better about 2/3 of the time. Please see the Vanguard paper, "Dollar-cost averaging just means taking risk later".

Wiki article, "Dollar-cost averaging". “Lump sum investing will always carries [sic] a higher expected return, because it immediately moves your funds from asset classes with lower expected returns to ones with higher expected returns. Note that higher expected returns do not guarantee that your actual returns will be higher. According to an investopedia article, studies indicate that lump sum investing has produced higher returns 66% of the time”.

Here is another interesting article to read -- "What if you only invested at market peaks?"

Holding on to cash while you wait for a better time to invest is likely to give you a negative real return net of inflation and taxes. I think it is better to invest in something with the reasonable prospect of a positive real return. Market timing (waiting for a good time to buy) is a fool's errand. No one can successfully do that consistently. If you wait for a good day to buy, you will never know if the next day, or the next week, or the next month, or even the next year might be an even better time to buy.

It was always my policy to invest whenever I had money available to invest.

The compromise solution is to invest part in a lump sum now, and the rest in stages. For example invest 50% in a lump sum now, and invest the other 50% in stages (like an additional 10% on a predetermined date each month for the next 5 months). Don't needlessly agonize over when the best time may be to invest.

The factors you list, "factors we have not dealt with directly previously becoming more and more important: climate change, negative interest rates, wealth inequality, or other more interesting theories like index funds becoming too popular and affecting the corporate governance . . ." are actually pretty commonplace, and not very novel or unusual in my opinion. That is just noise; you could have heard similar comments 10-15 years ago.

I suggest that you read one or two books on investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below. A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can".
Thank you for the info sources and articles to read. Solid study weekend ahead.

I’m in Japan, early 30s, I have two accounts, one tax advantaged, one not. I will place developed world equities in the tax advantaged account (called NISA here) and others in the normal account. As I’m in Japan, I cannot do Roth or tradtl IRA and my work does not allow for increased contribution to the defined plan, it’s just a local Japanese financial institution investing in indexes (but taking fees); I can choose my asset allocation at least. Currently debating if I should receive the amount they give to that provider in cash and invest it myself somewhere with no fees.

My current prospect portfolio is made up of the eMaxis Slim series of index funds; no load. Developed world equities and bonds, emerging markets. No industry or niche funds. Also not considering ETFs.

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