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Old 06-04-2013, 06:32 PM   #21
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I would not do anything drastic in this environment. Proceed with caution. Have you thought about buying an annuity instead ?
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Curious on peoples opinions on this. Have a bunch of money to invest right now. Want to add to my 50/50 portfolio. Am I dumb to be nervous about putting a large chunk of money in stock funds right now with the market so high? Would you just dump it all in now? Or average out the stock portion over the next year. This is for a retirement portfolio where retirement is starting now.
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Old 06-04-2013, 07:17 PM   #22
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Originally Posted by justthink View Post
Curious on peoples opinions on this. Have a bunch of money to invest right now. Want to add to my 50/50 portfolio. Am I dumb to be nervous about putting a large chunk of money in stock funds right now with the market so high? Would you just dump it all in now? Or average out the stock portion over the next year. This is for a retirement portfolio where retirement is starting now.

When do you need the money? to deal with question for myself, I separated my money into 5 year and 14 year money. The 5 year I put in safe places that is earning about 1.2%, and the 14 year I put in the stock market. By five year, I mean the pile of money I'm going to start using in five years, and should last the next 10, until I'm 70 (when I'll file for SS). I'm hoping that in 10-11 years the market will have at least kept up with inflation, and I can take out the short term money again.
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Old 06-04-2013, 07:43 PM   #23
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If it were me, I would probably DCA in over the course of a year. There are historically good and bad months for the market.

Seems the Federal Reserve may be changing their monetary policy in coming months and the market is plainly jittery about that. I wouldn't want to see the account plummet (even in the short term) when they get serious about stopping QE.
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Old 06-04-2013, 07:48 PM   #24
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I would not do anything drastic in this environment. Proceed with caution. Have you thought about buying an annuity instead ?
For perspective, obgyn65 will tell you he's probably the most conservative member here and he's essentially never invested in stocks in his life. He doesn't recognize the fundamental value underlying stocks, he only sees the emotional drivers ("fear and greed").

And he should also note that this is also one of the worst times in history to buy annuities, low yields/interest rates make them cost more for income provided than almost any time in generations. I'd wait to buy an annuity until much later in life, especially in this rate environment. There is no place to hid investment wise right now, equities are the only investments providing real returns at present, and the OP already realizes we're at highs...
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Old 06-04-2013, 07:55 PM   #25
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For perspective, obgyn65 will tell you he's probably the most conservative member here and he's essentially never invested in stocks in his life. He doesn't recognize the fundamental value underlying stocks, he only sees the emotional drivers ("fear and greed").

And he should also note that this is also one of the worst times in history to buy annuities, low yields/interest rates make them cost more for income provided than almost any time in generations. I'd wait to buy an annuity until much later in life, especially in this rate environment. There is no place to hid investment wise right now, equities are the only investments providing real returns at present, and the OP already realizes we're at highs...
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Old 06-04-2013, 08:09 PM   #26
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This is a fair statement. It is ok to disagree, this is America. As mentioned a few weeks ago, I bought some Wellesley recently so I am not totally adverse to taking risks.
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For perspective, obgyn65 will tell you he's probably the most conservative member here and he's essentially never invested in stocks in his life. He doesn't recognize the fundamental value underlying stocks, he only sees the emotional drivers ("fear and greed").
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Old 06-04-2013, 08:30 PM   #27
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I am not sure getting 1% more by lump sum is worth it if there is a risk of losing 20% vs DCA in a falling market.
The 20% drop is counterbalanced by the risk of losing a 21% gain.
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Old 06-04-2013, 08:39 PM   #28
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The thread is germane to my current situation as well. I have an employer account currently tied to ten year treasury rates. End of the month I had planned to roll over $375k to VG equity funds and $190k into bond funds. (120k of that money is earning about 2.5%)

I plan to hold the bond money in the more lucrative stable account, but haven't decided on how to transfer the $375k into stock funds. I keep hoping the stock funds will drastically drop the first of July lol.

I'm not planning on using money from either funds for at least 8 years. Probably longer.
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Old 06-04-2013, 10:46 PM   #29
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Hi,

I had a similar question a couple of years ago.

https://pressroom.vanguard.com/nonin..._Averaging.pdf

As others have said the most quoted study shows lump sum is better about 2/3 of the time... but the way I looked at it (and I am fully prepared to be corrected and educated)... averages and studies and numbers like 2/3 time would only be relevant to me if I had a lump sum to invest for every period of the study.

In reality, I have only one lump sum to consider at the time... the market will go up or go down from that time and the chances of it going up will not necessarily match the study "average" probability for the "instant" I am considering. So I decided I would sleep better with dollar cost averaging.

Others have referred to value averaging rather than dollar cost averaging. I might have done a rough version of this. I set up a schedule, then at times where the market dipped by > 2%, I bought more than scheduled.

I think lump sum investing is different from investing to your asset allocation over a longer period of time... as presumably over a longer period you have had opportunities to buy or rebalance to the asset chunk that was "on special" if it was done over time, whereas lump summing makes you buy the high performing/priced asset chunk (VB 34%) as much as the low performing/cheap asset chunks (say EWX -4%).

I see no problem with dollar cost averaging, but I am not the bravest.
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Old 06-05-2013, 05:53 AM   #30
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No way I would lump sum into stocks right now after this long period of low interest rates has resulted in the bidding up of divvy stocks and many other asset classes, and with the end of QE-whatever possibly coming adding extra fear.

It's ok to be a market timer every once and awhile, and IMO now is the time to wait for a drop.
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Old 06-05-2013, 07:43 AM   #31
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Quote:
Originally Posted by SVHoper View Post
Hi,

I had a similar question a couple of years ago.

https://pressroom.vanguard.com/nonin..._Averaging.pdf

As others have said the most quoted study shows lump sum is better about 2/3 of the time... but the way I looked at it (and I am fully prepared to be corrected and educated)... averages and studies and numbers like 2/3 time would only be relevant to me if I had a lump sum to invest for every period of the study.

In reality, I have only one lump sum to consider at the time... the market will go up or go down from that time and the chances of it going up will not necessarily match the study "average" probability for the "instant" I am considering. So I decided I would sleep better with dollar cost averaging.

Others have referred to value averaging rather than dollar cost averaging. I might have done a rough version of this. I set up a schedule, then at times where the market dipped by > 2%, I bought more than scheduled.

I think lump sum investing is different from investing to your asset allocation over a longer period of time... as presumably over a longer period you have had opportunities to buy or rebalance to the asset chunk that was "on special" if it was done over time, whereas lump summing makes you buy the high performing/priced asset chunk (VB 34%) as much as the low performing/cheap asset chunks (say EWX -4%).

I see no problem with dollar cost averaging, but I am not the bravest.
IMO - you've come to the right conclusion. I'm glad I dollar cost averaged back in 2000-2002 when the market was much higher relatively speaking than today. It's hard to look at a P/E of >40 in the face and jump in with a lump sum, even though at the time everybody said it was clearly the "best way".

I'm glad someone here pointed out that the differences between the two strategies is not that big.

IMO - lump sum works great in a secular bull market like the 80s and 90s, but we have not been in that environment since 2000. The "averages" smear them all together with a broad brush - not that useful IMO.

But the most important thing IS the psychological aspect. Learn how to manage your investing psychology - that is, develop a plan that fits your personality and will keep you invested under all market conditions, and then you are much more likely to be successful.
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Old 06-05-2013, 08:16 AM   #32
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Are you still contributing to your retirement accounts? If so, what percentage of your annual savings does the investment money in question represent? For example, if you are saving 50k a year and your lump sum is 250k then I'd go all in. If your saving very little and the lump sum is very large, I'd tip toe in. Additionally, dollar cost averaging is usually spoken of in regard to stocks. In today's environment, bonds are equally as risky. Fortunately, you can buy individual treasuries and CDs to lessen the bond risk. When it comes to bonds, don't be a boglehead. There's no random walk with bonds. They are at the complete discretion of the Fed. And your bond fund portfolio will be shorted by the big players way before you know what hit you.
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Thanks, justthink, for posting the question.
Old 06-05-2013, 08:42 AM   #33
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Thanks, justthink, for posting the question.

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If it were me, I would probably DCA in over the course of a year. There are historically good and bad months for the market.

Seems the Federal Reserve may be changing their monetary policy in coming months and the market is plainly jittery about that. I wouldn't want to see the account plummet (even in the short term) when they get serious about stopping QE.
+1. This thread is helping out my learning curve. Am in a similar situation, since rolling over the old 401K into a Vanguard IRA last year. Have been DCA-ing, while waiting for major dips (so I can put more into Wellington, but at a lower price).

Yeah, I know this would be "market timing," but I only shop for bargains, whether at Macy's, the grocery store, or Vanguard.

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Old 06-05-2013, 11:28 AM   #34
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Perhaps it might help if the source of the available funds were known..........
if they were from your 401K because you retired recently and rolled those funds to an IRA, mentally you might think of a lump sum investment as simply restoring your AA (assuming the AA was what you desired at that time).

......and I agree w/ those who say the favorable stats for lump sum are only useful if the time period is long enough or the sample size is large enough .
On a one time or short term basis, not sure what the stats are useful for except for a probability on paper.
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Old 06-05-2013, 12:23 PM   #35
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Or you could buy a ready made diversified fund like I did recently with a good size chunk of money. Put the whole thing in Vanguard Wellington. If you are more conservative put it in Wellsey. You will have an AA of either 60/40 or 35/65 respectively.
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Old 06-05-2013, 04:57 PM   #36
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Am I dumb to be nervous about putting a large chunk of money in stock funds right now with the market so high?
Of course not. Stay with your PLAN. You do have a PLAN (IPS) don't you? You seem to be trying to time the market. That is a losing strategy usually.

As always, it's your choice.
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Old 06-05-2013, 06:05 PM   #37
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it's me op reporting back! to answer a few questions i just retired and this is a lump sum pension. i have enough other savings i won't have to touch this for 5 or 6 years. i am an etf investor. so tuesday i bought bond etf's, foreign stock etf's, a tiny bit in real estate...then i put half of my money destined for us stocks in us stock etf's....and as expected the market crapped the bed today....so i bought i little more us stocks etf today at a lower price. i am really not worried.... long term this will be fine...hope to get the remaining money in us stocks in the next few days/weeks/months..i will just re-balance once a year and all should be well....i never considered an annuity. just never felt good about them i want to maximize what i leave to my survivors.
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Old 06-05-2013, 06:45 PM   #38
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IMO - you've come to the right conclusion. I'm glad I dollar cost averaged back in 2000-2002 when the market was much higher relatively speaking than today. It's hard to look at a P/E of >40 in the face and jump in with a lump sum, even though at the time everybody said it was clearly the "best way".

I'm glad someone here pointed out that the differences between the two strategies is not that big.

IMO - lump sum works great in a secular bull market like the 80s and 90s, but we have not been in that environment since 2000. The "averages" smear them all together with a broad brush - not that useful IMO.
My problem with dollar cost averaging is partly that on average it cost money. My guess is that would have been roughly twice the Vanguard study of 2.3% so it isn't awful to DCA. Still it is important to keep that in context, if you had the bad luck of investing the lump sum yesterday and the market went down like it did today Dow -217, broader averages down 1.4%. On average you'd still be ahead of with a lump sum 2/3s of the time..

But to me the larger issues is that when I read questions like the market is too high, what often happens is the person will sit on the sidelines waiting for the market to correct for months, which turns into years. In this environment when stocks (and potentially real estate) are about the only asset class that chance of exceeding inflation, I think waiting on the sidelines is the most dangerous decision..


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But the most important thing IS the psychological aspect. Learn how to manage your investing psychology - that is, develop a plan that fits your personality and will keep you invested under all market conditions, and then you are much more likely to be successful.
100% agree with this.
To the OP credits he appears to have developed a plan, a very reasonable plan and executed it even if his timing was bad.
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Old 06-05-2013, 07:08 PM   #39
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My problem with dollar cost averaging is partly that on average it cost money. My guess is that would have been roughly twice the Vanguard study of 2.3% so it isn't awful to DCA. Still it is important to keep that in context, if you had the bad luck of investing the lump sum yesterday and the market went down like it did today Dow -217, broader averages down 1.4%. On average you'd still be ahead of with a lump sum 2/3s of the time..

But to me the larger issues is that when I read questions like the market is too high, what often happens is the person will sit on the sidelines waiting for the market to correct for months, which turns into years. In this environment when stocks (and potentially real estate) are about the only asset class that chance of exceeding inflation, I think waiting on the sidelines is the most dangerous decision..




100% agree with this.
To the OP credits he appears to have developed a plan, a very reasonable plan and executed it even if his timing was bad.
The problem with that is the qualifier "on average".

I'm glad I "guessed" that I wasn't in "average" times. I don't think I would have been psychologically able to invest a lump sum in Dec 1999/Jan 2000.

DCA is a good way to avoid the paralysis of sitting on the sidelines and yet still be able to sleep at night.
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Old 06-10-2013, 02:45 PM   #40
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And a week after worrying about investing in stock funds the last thing i expected was for the bond funds to drop so much. Investing builds character.
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