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Dollar cost average large amounts currently?
Old 07-16-2003, 10:35 AM   #1
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Dollar cost average large amounts currently?

Different sources have mentioned putting monies into the market though "dollar cost averaging" and others saying this is a bad idea. For me, I think this is the way to go for money coming regularly from ones paycheck, etc... but what about large amounts of money?

I currently have been putting in a large sum of money into the market over a month by month period. Now I'm wondering if I should just dump it all in before the market goes up and I'll be paying more?

Any thoughts on this?

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Re: Dollar cost average large amounts currently?
Old 07-16-2003, 10:54 AM   #2
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Re: Dollar cost average large amounts currently?


No one knows where the market is headed on the short term ( or even long term). History tells over the long term it has gone up. I would first decide on my asset allocation (stocks, bonds, reits, fixed income, reits, etc) and then work into those assests over a period of time. The two things that hurt the average investor the most is fear and greed. If market goes down you may want to increase what you put in. This is hard to do.
Look at your assest allocation periodically to see if is where you want it based on your risk tolerance and time frame. Rebalance.

Best wishes


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Re: Dollar cost average large amounts currently?
Old 07-16-2003, 11:51 AM   #3
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Re: Dollar cost average large amounts currently?

Where is this money coming from? Is it invested elsewhere or just sitting in a checking account or mattress after a windfall? If it's invested, I might think dollar cost averaging might make sense on both sides of the equation.

Conventional wisdom might say that the market is down right now and ready to go up, but I've seen a few arguments that the P/E ratios are still too high, and the U.S. economy as far as I can tell is still showing mixed signals. I think there is still a lot of uncertainty about Iraq, Liberia, North Korea and the coming elections, so that may make the market flaky, too. (I know I'm being much more conservative with my money lately.) In short, we really can't tell if we're in a dip or not, or at least not if we're at the bottom of a dip or not.

To me, that would seem to favor dollar cost averaging.

Then again I'm a bit lazy and a bit impatient, so I'd be tempted just do it all at once to get it over with depending on the reasons and risks of the situation.

A couple of years ago I decided I wanted to increase my percentage in bonds and smaller equities. I decided not to transfer existing funds (with one exception), but to skew my new contributions to build up the percentages. So I chose dollar cost averaging, but I didn't have to manage it from month to month since it comes out of my paycheck in my chosen percentages automatically. My exception was a transfer out of a managed fund with higher expenses (PRIMECAP, VPMCX); I decided to reduce my position there and moved half into the "market - 500" VEXMX.

(I'm torn on whether to bail completely from PRIMECAP. On one hand it's actively managed and has a higher fee, but on the other hand it's served me fairly well so far.)
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