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Should I talk to accountant?
Old 10-29-2011, 06:50 AM   #1
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Should I talk to accountant?

I am expecting a large capital gain from an investment, either this year or early next. I'm not sure how to deal with it.

Do I put it in the bank and DCA over a couple of years into investment accounts or go ahead and put it in immediately?

Should I talk to an accountant? I've never dealt with one, preferred to learn and do on my own in past, but this is a lot of money.

And if I should get an accountant, how do I go about finding a really good one?

I don't mind coming to w**k,
but that eight hour wait to go home is just bulls**t!
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Old 10-29-2011, 07:07 AM   #2
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Are you concerned about taxes or looking for tax advice? That would be the only reason you might need an accountant.

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Old 10-29-2011, 07:38 AM   #3
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Seems to me that you hire an accountant for tax questions. Unless this cap gain is more involved than it seems, I don't know what he would really do for you. If the cap gain is short term, he might have some idea on how to stretch it into a long term gain. Otherwise, unless you have questions about how to invest tax efficiently with the proceeds, I think you just pay your tax and move on.

As far as DCA vs invest immediately, you will get different opinions on it here, for sure. Upfront I'll state that I believe in AA as opposed to market timing, so I say don't DCA.

My opinion is that you manage risk by having an appropriate asset allocation, and you want to get to what you decide your AA is right away. If you keep a lot of money in the bank while DCA'ing, your portfolio is severely underweighted in stocks, and you are at risk of missing a run-up. The market could be rising while you are trickling money in over time, and the day you put the last money in, the market could tank. Unless you have some strong feel about the market direction (and are willing to market time), there is no greater chance that the market will tank the month after you invest the whole lot vs. a year later after you complete the DCA.

I've heard the arguments for DCA. As far as I can see, it's an emotional decision. You fear making a major decision to invest the whole amount at once and have it immediately tank.

Let's look at it this way. I have $1M in the market right now. You just got your big lump and if you were to follow your AA plan you would invest $1M now, but you are also considering DCA'ing 10% every quarter (or at whatever pace you choose).

The market doesn't care at all where each of us came from with that $1M. If it's a good idea for me to keep my $1m in the market, it should be a good idea for you to invest it all now. Conversely, if it's a good idea for you to invest just $100K now,shouldn't it be a good idea for me to sell $900K (let's assume I'm even right now so there are no tax consequences) so I'm in the same position? After all, we share the same risk of losing money in a market downturn. The only difference is that one of us would be making an active decision, while the other is being passive, and the active decision is emotional. Most people find it tougher to accept the consequences of having a decision backfire, than the do accepting a missed opportunity by doing nothing.

In the end it's your money and you need to do what feels right to you and lets you sleep at night. Don't invest it all right away because RunningBum says to. But realize if you DCA, you are in reality a market timer rather than following an AA plan--and that's ok. If you don't see it that way, at least realize it is an emotional rather than a logical decision. I don't feel you should make emotional decisions about money, but if that helps you sleep better, go ahead.
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Old 10-29-2011, 08:34 AM   #4
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In the past, I DCA'd a six figure sum of cash monthly for about a year during 2008-2009, and as a result bought low at the bottom as well as not-so-low at other times. I think DCA worked very well for me but it is hard to keep doing it during a crash; you have remain unemotional and strong to keep it up. The effect of DCA is buying at more or less an average market over the period of the DCA. You don't end up chastising yourself for buying high. In my case I will be forever glad that I DCA'd so that I didn't completely miss the opportunities provided by the 2008-2009 crash.

Another option might be to just let rebalancing take care of it. It is more of a gamble - - if the market is low at the time of rebalancing, then you will do wonderfully. If the market is relatively high at the time of rebalancing, you will be kicking yourself.

It sounds to me like MichaelB and RunningBum are right about the accountant issue.
"You can never cross the ocean until you have the courage to lose sight of the shore." - - - C. Columbus
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Old 10-29-2011, 09:14 AM   #5
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Thanks for the feedback. I am pretty sure about the tax implications, long term gain issue. Just wasn't sure what accountant might add, if anything - doesn't look like it.

And yes, it is an emotional issue. I would find it harder if an active decision backfired. Having that pointed out however helps me merge that aspect into my thought process and ultimately my decision.

I don't mind coming to w**k,
but that eight hour wait to go home is just bulls**t!
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Old 10-29-2011, 10:53 AM   #6
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I had a similar situation this year -- not a huge amount, $50k. I'm quite risk averse, but I don't have a phobia about market timing. I held it in cash for several months, waiting for the market to go down, which it did in August. I bought shares of several mutual funds, about $5-8k/week, through September. I used the "market fair value" graphs at Market Fair Value by Sector, Industry, Super-Sector, Index | Morningstar as a guide to guessing which mutual funds were currently cheapest (most undervalued), week by week, to decide what to buy.

Looking back, one can see how that strategy might not have worked.
Greg (retired in 2010 at age 68, state pension)
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Old 10-29-2011, 12:44 PM   #7
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If it is currently in equities, invest immediately.

If you are totally conflicted you can always immediately invest half when you get it and DCA the rest...

At the moment, the market is higher than it has been for a while, so I might favor DCA in hopes it would go down again.
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Old 10-29-2011, 03:47 PM   #8
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A tax advisor or tax accountant is paid for tax advice.
A financial advisor is paid for investing advice.

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