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Help Me Get Off the Fence
Old 02-09-2011, 04:43 PM   #1
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Help Me Get Off the Fence

Help! I am risk averse by nature. I rolled over a government retirement account (CSRS Voluntary Contribution) into a Roth IRA with Vanguard, and now I'm afraid to buy anything with it. It's just sitting there in a MM fund doing nothing. I fear that as soon as I buy an index fund, the market will plunge. I realize this is a superstitious, self-centered way to feel (as if the market cared about ME one way or another), but can't help myself.

Please talk me into investing the money.

I am thinking about putting it into VG Wellington.

LOL, you need to yell at me, since my AA needs more equities.

Amethyst
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Old 02-09-2011, 04:57 PM   #2
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Buy in small chunks over time. This way if market goes against you after your purchase, most of your buys are still ahead of you...

Alternatively to spacing your purchases by time, you could space them by change in the market. E.g. buy second chunk after market move up or down say 5%. Next chunk again after the market moves 5% from the last price you bought, etc... Again, each time you buy, either last or this purchase is "better" :-)
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Old 02-09-2011, 05:14 PM   #3
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I think technically Wellington is a managed fund, not an index fund, if that matters. Go ahead and close your eyes and toss it all in, Amethyst! Then ignore it until May 1 and I bet you'll have a nice surprise.
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Old 02-09-2011, 05:35 PM   #4
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Originally Posted by Amethyst View Post
Help! I am risk averse by nature. I rolled over a government retirement account (CSRS Voluntary Contribution) into a Roth IRA with Vanguard, and now I'm afraid to buy anything with it. It's just sitting there in a MM fund doing nothing. I fear that as soon as I buy an index fund, the market will plunge. I realize this is a superstitious, self-centered way to feel (as if the market cared about ME one way or another), but can't help myself.

Please talk me into investing the money.

I am thinking about putting it into VG Wellington.

LOL, you need to yell at me, since my AA needs more equities.

Amethyst
Ditto on the risk adversity. Ditto on a chunk (13% of my retirement portfolio) sitting in a TE money market fund.

I feel no rush to do anything right now, regardless of the market. At my request, Mr B is casually looking for some different types of investments for me. His conclusion was for me to sit tight for a few months and go with relatively stable capital preservation (money market) until I felt a compelling need to reinvest it elsewhere.

I'm just not sure where I will invest it. I'd rather sit on it for a few months until I go through my retirement plan AGAIN and do a full fledged sanity check.

Take your time, do some planning, model a "new" portfolio at M* and run the Xay tool, then make your move (or lack thereof).
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Old 02-09-2011, 05:40 PM   #5
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What else do you already have in your portfolio besides all this cash? Maybe you can just list percentages. Or you can get the full monty treatment by going to Bogleheads :: View Forum - Investing - Help with Personal Investments and read "Ask Portfolio Questions"
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Old 02-09-2011, 05:45 PM   #6
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Your protection against a market downturn, while taking advantage of market rises, is a good AA. If your equities are below your AA, you are missing out on market gains. If you have more equities than your AA says, you are at too much risk in a downturn. Don't be a market timer! Get your equities up to your AA ASAP, and forget about it!
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Old 02-09-2011, 06:35 PM   #7
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Amethyst, I have just as much anxiety about investing...but I find the "dribble" method previously described to be somehow easier for me to wrap my brain around. A little bit here, a little bit there. I still keep track of the allocation & I still have a lot in MM/CD/munis as protection.

I think Wellington would be a good conservative approach and I have a bit in that fund. I also like the V Total Stock Market Fund.

I also worry that the stock market is on Steroids right now & ready to get slammed, but who knows!
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Old 02-09-2011, 06:46 PM   #8
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I agree with several other posters. If you are a bit skittish, Amethyst, you should "dollar cost average" Dollar cost averaging - Wikipedia, the free encyclopedia
By putting equal amounts in over a period of a year, you will avoid buying all the stock at a high point.
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Old 02-09-2011, 07:03 PM   #9
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Let's put it another way. If you were fully in the market with respect to your AA, would you sell a bunch now and then trickle it back in? If not, why not? Other than transaction costs and taxes, there is no difference. It shouldn't matter where you are now, what should matter is where you want to be.
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Old 02-09-2011, 07:40 PM   #10
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I've had Wellington for years and it has been good . It's a balanced fund so it is not as risky as some of the pure stock funds . Good luck choosing !
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Old 02-09-2011, 08:16 PM   #11
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I've had Wellington for years and it has been good . It's a balanced fund so it is not as risky as some of the pure stock funds . Good luck choosing !
But Wellington is just as risky as putting 65% of your money in a large cap value fund and 35% in an intermediate-term bond fund. Your portfolio of the combined 2 funds would act just like Wellington.
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Old 02-09-2011, 08:25 PM   #12
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How about Wellesley? It's also a balanced fund with about 35% in equity and the rest in bonds.
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Old 02-09-2011, 08:44 PM   #13
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How about Wellesley? It's also a balanced fund with about 35% in equity and the rest in bonds.
You forgot the "Psst". BTW, where is unclemick?
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Old 02-09-2011, 09:11 PM   #14
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I recently rolled my 401k over to a VG IRA. The AA in my 401k was 50/50 so I rolled it driectly to VG Target Retirement 2010, which is also 50/50. That way I maintained my overall AA .

TG 2010 is comprised of 4 other VG funds plus a small percentage in VG MM.
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Old 02-09-2011, 11:19 PM   #15
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Let's put it another way. If you were fully in the market with respect to your AA, would you sell a bunch now and then trickle it back in? If not, why not? Other than transaction costs and taxes, there is no difference. It shouldn't matter where you are now, what should matter is where you want to be.
There may be no difference in return but there's a big difference psychologically, and from her description I'd say it's the psychological hurdle Amethyst is having difficulties getting over. DCA may not result in higher returns than putting the money all in at once, but even allowing for the greater transaction costs of moving the money a little at a time, I would expect the resulting returns to be an improvement over leaving it sitting in a money market waiting for the "right" moment.

Here's an idea for Amethyst. There's probably an amount of money you would be willing to invest in your chosen AA without even thinking about it. Imagine you had a little windfall of some sort or other—would you agonize over it if it was an extra $10 bill you found in the glove box? Surely not! What about a hundred? No? A little more? Then, whatever amount you would be willing to put in if you got it as a windfall, start by transferring that much from your money market to your chosen fund or funds. Lather, rinse, and repeat. You'll either move it all a tiny bit at a time, or buying into your chosen AA little by little will eventually defuse your anxiety and you'll be able to put whatever MM remains at that point in all at once.
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Old 02-10-2011, 01:42 AM   #16
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Robert Lichello had a book entitled How to make $1,000,000 automatically in the stock market.

Basically he has two items/buckets/categories that are vary independently like cash and mutual funds and has half in each. Using an algorhythm he moves from what is expensive to what is cheap after the move is significant enough.

There are a few other values that regulate this and can be converted to an excell spread sheet. It works best when the non cash thing is very volatile and will not go to zero.

Although designed for mutual funds it can be applied with certain considerations to individual stock.

Years ago, I back tested this with the dow 30 for a random year 40's? and ran it with equal dollar amounts to each. I ignored the stocks that were acquired. Results were very good on the one test I did for everything compared to buy and hold with the exception of one stock that went straight up for 7-10 yrs with no significant dip...
I run that spreadsheet quarterly to decide if I buy or sell since earnings are reported quarterly.
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Old 02-10-2011, 02:48 AM   #17
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I'm kind of in the same situation except I haven't actually made the conversion to Roth at this point. I put a significant chunk of my 401(k) in Vanguard late last year and then characterized part of it to a Roth and left a chunk in MM as a TIRA. I had my mind made up that at the first of the year I would make my move, but so far, I have not.

One thing that others on the forum might know better than I - can you move the MM to a fund and then recharacterize BACK to a TIRA if the fund goes south? That's sort of what I'm thinking about. If the fund loses big, recharacterizing to a TIRA at least gives you a tax advantage of having less taxable money at that point. Losing a chunk in a ROTH gives no tax advantage.

I'm thinking you have until, maybe, October to do-over. Not sure of the details as I've never done it. Also not sure what the limitations are since you've already put the money into a fund.

Anybody know details on this possible strategy?

Alternately, you might consider putting the money into something "safe" (maybe a Treasury fund) that would at least make a little more than the dismal return of the MM fund.

Good luck. I feel your pain!
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Old 02-10-2011, 04:54 AM   #18
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I tend to agree that dollar cost averaging may be easier pyschologically. I rather like Kyoung's suggestion for to approach the problem.

On the other hand you are spreading the pain over a long period of time. If the market goes up while you are putting it in you'll be kicking yourself, if it goes down you'll be scared to put more in the market while it is going down.

Are you the type when entering a cold pool or oceans to do so slowly or do you just diving in and get the initial shock over with? If you can dive in a cold body of water than do the same thing with the stock market.
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Old 02-10-2011, 07:11 AM   #19
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The DW and I have Wellington AND Wellesley for years... First funds we ever owned. (other parts of the portfolio are indexed.)

We were able to "stay-the-coarse" during 2000-01 and during the mortgage mess..While my BIL and friends were selling EVERYTHING.
BIL also lost his house...

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Old 02-10-2011, 08:56 AM   #20
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You forgot the "Psst". BTW, where is unclemick?
I was wondering that too.

Oh...UuuuuuncleMiiiick....wherefore art thou?
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