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Re: How to invest a lump sum
Old 02-05-2007, 12:06 PM   #41
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Re: How to invest a lump sum

I had the same decision to make last spring with a little over $1 million. It can drive you crazy worrying about what if's. What if the equity market tanks, what if the bond market tanks, what if inflation flares up, what if Japan sells all its US Treasury debt? In the end I just went on a buying spree one day at Vanguard after deciding on my AA. Then I watched the market closely and sweated for a few weeks while the whole process was fresh in my mind and the markets bobbed up and down. After that I pretty much forgot about the whole thing, and the world wasn't so full of scary what-ifs any more. Life was good. How did it work out? I don't know if DCA would have done better, but the account has grown $120k since late March, so I am satisfied.

I think the bottom line is that you've got to make a decision based on the information that you have today about the investment climate and investor characteristics, and then don't look back. A year from now the difference between a lump sum investment and a DCA investment will probably be less than a few percent. In ten years it will only be a fraction of a percent of difference in average returns. It will be more important to have chosen a low-fee brokerage than to have guessed right about where the market is going over the next few months.
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Re: How to invest a lump sum
Old 02-05-2007, 12:11 PM   #42
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Re: How to invest a lump sum

Quote:
Originally Posted by wab
So, after looking at the chart, do you still think that earnings don't mean revert?
The GDP grows over time, so no, I don't think earnings mean revert over the long term.

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Re: How to invest a lump sum
Old 02-05-2007, 12:17 PM   #43
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Re: How to invest a lump sum

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Originally Posted by wab
So, after looking at the chart, do you still think that earnings don't mean revert?
Wab, I'm sure that if you beat the snot out of the data you can get earnings to do anything you want!

I'm not sure how a ratio between earnings & GDP proves your reversion jihad point.
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Re: How to invest a lump sum
Old 02-05-2007, 12:20 PM   #44
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Re: How to invest a lump sum

Quote:
Originally Posted by audreyh1
The GDP grows over time, so no, I don't think earnings mean revert over the long term.
OK, I guess it depends on which mean we mean.

In terms of % of GDP, it's pretty obvious that earnings revert to the mean. What isn't so obvious from the graph is that GDP growth tends to mean revert on the same cycle, so earnings tend to correct even more than the graph shows.

Semantics aside, market P/E obviously doesn't tell the whole story, especially when we're at the peak of the earnings cycle. I have no idea when earnings will retreat, but it seems certain that earnings growth is limited for the next few years.
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Re: How to invest a lump sum
Old 02-05-2007, 01:44 PM   #45
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Re: How to invest a lump sum

You should max out every retirement plan available to you. If you are over 50, and you can probably contribute over $20k a year to your qualified retirement plan, plus 5k to a Roth. If you have a spouse, you can double those figures. Then if necessary, use some of your windfall to make up the difference in income. This way, you will essentially convert some of the windfall into tax deferred money.
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Re: How to invest a lump sum
Old 02-05-2007, 04:22 PM   #46
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Re: How to invest a lump sum

Quote:
Originally Posted by audreyh1
The GDP grows over time, so no, I don't think earnings mean revert over the long term.
Ding! Ding! Ding!
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Re: How to invest a lump sum
Old 02-05-2007, 04:24 PM   #47
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Re: How to invest a lump sum

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Ding! Ding! Ding!
Would you please stop playing with the door bell and stay on topic?
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Re: How to invest a lump sum
Old 02-05-2007, 04:33 PM   #48
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Re: How to invest a lump sum

I thought I was the one staying on topic...you mean it was you?
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