Portfolio Realignment/Liquidation: When to reinvest

[younginvestor2013]

I posted a while back about liquidating an inheritance I received that was previously held at a smaller/local investment manager charging relatively pricey fees. I have since liquidated 100%. The liquidation occurred on February 19th, when the market had a decent “spike”. Since then, the S&P 500 has gone from about 1530 to 1550.

My original strategy was to value cost average through December 2013 the $225,000 (ball park) inheritance I received. However, I am starting to get uneasy/restless as the market continues to push up. Since I (unintentionally) happened to liquidate at a “spike”, I haven’t lost much by being heavily on the sidelines for the past month.

But, I am beginning to wonder if we will see some market “correction” before the year end. That would be great for me and if I felt it substantial enough I would re-invest all of my funds. However, I am not a market timer and don’t intend to be.

Should I just suck it up and reinvest the full amount today/tomorrow (and get over the very small gains I have lost over the past month), or should I stick to my value cost averaging strategy thru December 2013? The former could generate more returns if the market never does drop, while the latter could generate substantially more returns (in the long run) if the market eventually does “nose dive” a bit this year.


Thanks in advance for your suggestions.

 

[pb4uski]

There is no knowing the right answer. My gut sense is that the recent rise in the market has been too much too quickly and that some sort of correction is inevitable so I would stick with your value averaging strategy.

In nine and a half months, we'll know for sure.

 

[FIREd]

If you are "not a market timer and don't intend to be", then what choice do you have? If you were happy with you AA before the liquidation, then you should reinvest the money immediately. Not what I would do, but I am a market timer.

 

[Animorph]

I'd use one of these strategies:

1) Put it all in now. The gap was just a cost of transfer, it's only one time, and it's where you would be now if you'd invested it long ago. You may regret not waiting, but you might not.

2) Reinvest whenever the individual investments you want to buy are below their price on 2/19. Same as 1, but no cost. You can even cover commissions, if that's a problem, by waiting for a slightly lower price. The risk is they never go lower, but that seems like a long shot. I thought that on 1/1/2013 as well, so you never know.

3) Wait until some of the budget cutting hits the GDP and maybe the market takes a bigger dip. Not sure this will be a quick thing, but it's got to have some effect. Even greater if it hits all at once. Obvious risk there. How low does the market have to go before it is "safe" to invest? What if it goes down more?

4) DCA/VCA in with some periodic amount over some period of time. If you're just too paralyzed to act, this may be your best shot, maybe with small weekly investments even. At risk of a rising market, but OK if the market heads down.

5) Make it up as you go along full market timing. Is that really the way you want to invest?

I kind of like 1 or 4, though I'm sorely tempted by 3. I actually have a lot of cash just now. However, I am retired and will spend it in a few years if nothing else. If the market goes down more than 20% I'll reinvest some of it. So I can stake some claim to 3, but maybe also to 6) do nothing.

 

[easysurfer]

No one really knows if the recent spike is a peak or a new bottom, or somewhere in between.

I like to keep my emotions out of the equation and also not over think so I would decide on when I want the money invested, then DCA into the market. For example, if time frame is 12 months, then divide the amount by 12, then invest that amount each month and be done with it. The investment doesn't have to be for one asset class. But instead should be according to your AA.

If I over think, I'd fear making a mistake or end up giving to temptation of market timing and end up making a mess zig zagging in and out.

 

[Yumadons]

I did almost the exact same thing. Total rookie here. I liquidated our $380K in IRAs on Feb 6 (DJIA 13986) upon finding this website & realizing how much LPL was costing us. Switched to Vanguard & dumped it all back in on March 12 (DJIA 14450), which was ASAP under the circumstances. Turned out to be the 9th day of an 11 day streak. Not pretty maybe but at least it's out of LPL and I'm forever changed and paying attention from now on! Am getting another $70K next month & will wait for a market nosedive to put that in since it's slated for Vanguard Total Stock Market Index Fund (the IRAs were ~ 2/3 bonds, 1/3 stocks).

 

[jollystomper]

No one really knows if the recent spike is a peak or a new bottom, or somewhere in between.

I like to keep my emotions out of the equation and also not over think so I would decide on when I want the money invested, then DCA into the market. For example, if time frame is 12 months, then divide the amount by 12, then invest that amount each month and be done with it. The investment doesn't have to be for one asset class. But instead should be according to your AA.

If I over think, I'd fear making a mistake or end up giving to temptation of market timing and end up making a mess zig zagging in and out.

+1

 

[obgyn65]

My thoughts exactly.

There is no knowing the right answer. My gut sense is that the recent rise in the market has been too much too quickly and that some sort of correction is inevitable so I would stick with your value averaging strategy.

In nine and a half months, we'll know for sure.

 

[Lsbcal]

The most important thing to do is to select a strategy that you can actually execute and stick with. This would be a strategy you do not feel the need to second guess.

If you are young, then you may not understand yourself and your reactions to the investment environment well enough to truly select a long term strategy. Maybe in that case select a few strategies (2 or 3, divide the portfolio) and see which one you can live with.

Gut feelings are worthless to me.

 

[Tyro]

Given your (young) age and longterm horizon, if you think the market will behave similarly to its history (grow over time) and you intend to stay invested for the long haul (vs. continuing to market time), and continue to add to the pot by some form of averaging (regular saving/investing), it probably doesn't matter which method you use.

If you were already ER'd, it might make more of a difference.

Tyro

 

[MikeTN]

I remember seeing some historical research several years ago that showed the dollar cost averaging was inferior to going all in in the majority of time periods examined. Not surprising, if you consider that the long-term trend is up.
However, I can relate to your situation. I hate to invest money at the peak. My daughter had a similar situation recently. I advised her to put half in right away, and delay the other half. If the market goes up over the year then you are richer either way. It is easier to accept that you could have done even better (if invested all at once) when you know that at part of your money had experienced the full gain.