Thoughts/criticism on my investing strategy and AA

[nun]

Wow I derailed my own thread, awesome!

To get this back on-topic, this is what my current game-plan looks like.



Any suggestions or objections before I put things in motion? The market is so artifically inflated right now though, I'm considering waiting until the DJIA goes back to 14k. I know, timing the market is bad but ignoring basic logic is...not

Consider dollar cost averaging into your desired AA.

I'm not sure why you'd want the extra taxable income of a dividend strategy at your age. I'd just get rid of all the individual stocks, but if you want dividends there are plenty of funds that will throw those off.

I'm a fan of paying down your mortgage principal just because a paid off house is one less thing to worry about in ER.....there are scenarios where it's not the most financial efficient course, but it removes some worry from ER.

You definitely need to be saving more to reach your goals, so look at being more frugal and make sure you max out the ROTH each year.

Good luck

 

[Midpack]

Any suggestions or objections before I put things in motion? The market is so artifically inflated right now though, I'm considering waiting until the DJIA goes back to 14k. I know, timing the market is bad but ignoring basic logic is...not

Honestly, if you know "the market is so artificially inflated" including what drives valuations and when/if the DJIA will come back to 14K, I don't know why you would you ask for our advice? I assume you correctly timed in an out in 2000 and 2008 too.

 

[dvalley]

Honestly, if you know "the market is so artificially inflated" including what drives valuations and when/if the DJIA will come back to 14K, I don't know why you would you ask for our advice? I assume you correctly timed in an out in 2000 and 2008 too.

So if I reverse-read your comment, are you publicly going on the record to suggest that I should move the $125k lump-sum into the current market?

 

[dvalley]

Consider dollar cost averaging into your desired AA.

I'm not sure why you'd want the extra taxable income of a dividend strategy at your age. I'd just get rid of all the individual stocks, but if you want dividends there are plenty of funds that will throw those off.

I'm a fan of paying down your mortgage principal just because a paid off house is one less thing to worry about in ER.....there are scenarios where it's not the most financial efficient course, but it removes some worry from ER.

You definitely need to be saving more to reach your goals, so look at being more frugal and make sure you max out the ROTH each year.

Good luck

I've learned that dividends over time add up to a significant amount. I do believe that it's better to have them in the tax-deferred accounts though. Any examples of funds (ETFs?) that provide good yields? I would much prefer a simpler, low expense ratio fund that will serve the same purpose rather than me cherry picking the equities myself. However, the ones I listed have historically been solid dividend earners and 10 isn't nearly as bad but I wouldn't want any more.

Thanks for the response, I'm just hoping to have a normal discussion here without the passive-aggressive pot-shots etc

 

[enjoyinglife102]

I won't hold individual stocks ever again. The data clearly shows that doing so will likely have me underperforming an index/low cost fund and I know for sure it will be a lot more complicated in every way. How does that then make any sense? Psychologically for some, myself included, it's easier not to sell during downturns when your funds are throwing off dividends. Each of us has to find whatever allows us to stick to our plan. I hold Vanguard Equity Income and Dividend Growth and plan to do so for a very long time. Vanguard has funds with a similiar strategy of each of those in an index version.

I can't believe every time I read about someone timing the market. How much evidence does one requre before they believe no one can do it? DCA your money in so you'll feel better if the market drops.

 

[Abreutime]

So if I reverse-read your comment, are you publicly going on the record to suggest that I should move the $125k lump-sum into the current market?

I'm not midpack, but you should pick an asset allocation and a timeline to get there, and move there irrespective of the market. Posting a graph of nominal prices over time does nothing but maybe highlight the foolishness of staying with cash long-term.

 

[Midpack]

So if I reverse-read your comment, are you publicly going on the record to suggest that I should move the $125k lump-sum into the current market?

Either you believe in market timing or you don't. I go back to my first reply in post #9, still the best advice I can offer...

What is the DJIA chart supposed to show BTW?

 

[dvalley]

Guys, please realize that not one-size-fits-all. There's more to it than the repetitive advice of AA and compounding interest. Not that I'm against that advice because it works great for someone who wants to invested smaller amounts over a long period of time. However, if someone sold a business and made $1M cash and wants to invest it into the market right now (when the economic indicators don't match up with the stock market) wouldn't it be foolish to do so? Who knows may be the DJ will reach another new high but it hasn't done that in this sort of economy since just before the last crash.

All this aside, because I'm not the fed chairman or a rocket-scientist, I'm just wondering about how to invest my $125k into the market without regretting it? should I break it up into 20k chunks and invest it once a month or throw everything in (which is what I'm feeling uneasy about)?

 

[Mulligan]

Guys, please realize that not one-size-fits-all. There's more to it than the repetitive advice of AA and compounding interest. Not that I'm against that advice because it works great for someone who wants to invested smaller amounts over a long period of time. However, if someone sold a business and made $1M cash and wants to invest it into the market right now (when the economic indicators don't match up with the stock market) wouldn't it be foolish to do so? Who knows may be the DJ will reach another new high but it hasn't done that in this sort of economy since just before the last crash.

All this aside, because I'm not the fed chairman or a rocket-scientist, I'm just wondering about how to invest my $125k into the market without regretting it? should I break it up into 20k chunks and invest it once a month or throw everything in (which is what I'm feeling uneasy about)?

I am going to play amateur psychologist so consider what that is worth... All the studies I personally have ever read consistently show if you are a LONG term investor, you are better to determine your allocation and the dump it all in. That being said, I know where you are coming from. No way in hell would I dump it all in at once despite what the studies I have read say. Many people I have read on Boglehead suggest doing it over a year. If I was in your position I would spread it in over 2 years. But I invest like an old widowed lady. I have over a 100k in CDs and low interest savings begging to be put to work, but it's not going to happen because I have loss aversion syndrome. Now I dump about $500 a month in total market index, but I am still saving way over a $1000 a month alone out of my pension each month. So no I will never get all my money in the market. I do have some money also in total international, STAR, and Intel (10k for fun to have one stock to watch). All this rattling on I am doing is basically to say I understand fully where you are coming from, and you have to decide the number that allows you to sleep comfortably at night. I also fully understand my attitude would probably have to be different if I didn't have a nice pension to live on that completely takes care of my lifestyle.

 

[nash031]

All this aside, because I'm not the fed chairman or a rocket-scientist, I'm just wondering about how to invest my $125k into the market without regretting it? should I break it up into 20k chunks and invest it once a month or throw everything in (which is what I'm feeling uneasy about)?

If I were in your situation, I would:
- Dump the dividend-generating stocks altogether and index it (but that's why I say I'm a boglehead).
- Put my bond allocation in a tax-advantaged account (IRA or 401k)
- Stop the pre-payment on mortgage and add that amount to investment and/or college fund.

Bottom line up front about DCA: Your investment horizon seems to be on the order of 10-20 years, so I don't think it's a big deal either way, and I wouldn't let the current market level turn me off from investing because we have no idea what the market's going to do in the near future, and in 10-20 years, it won't matter very much anyway.

The DCA question is a little bit "stickier" and is very personal depending on your risk tolerance. Lump sum investing (LSI) likely provides a higher average return than DCA, but there is always risk that you are buying in at a market high. DCA is less risky, but also reduces the possibility of maximum returns.

Just reading your posts, it seems that you would rather DCA starting now, or wait to try to "time" a LSI. Problem with opportunistic LSI is that you're unlikely to buy in at an absolute low, and therefore if you're too wrapped around the axle you may end up with regret (either from letting the low pass you by or investing too soon).

Personally? I'm a periodic investor (semi-monthly into taxable, monthly into IRA and TSP), but when I have a "big pile", I lump sum it during one of my semi-annual "rebalancing" looks at my portfolio, and let my AA drive where I put the money regardless of the market's current level and what I think it might do. In the long run, it's just noise.

Again, all that stuff is just how I would do it.

 

[Midpack]

All this aside, because I'm not the fed chairman or a rocket-scientist, I'm just wondering about how to invest my $125k into the market without regretting it? should I break it up into 20k chunks and invest it once a month or throw everything in (which is what I'm feeling uneasy about)?

Sorry if I was too direct earlier, but you can't know the best time to LSI if you wait. Market may not hit 14K for years (cash isn't even keeping up with inflation), or it may happen within a month and continue down to 8K.

Many here have invested large lump sums, and many others understandably just aren't comfortable so they choose to DCA in. Sounds like you're in the latter camp, as probably most would be. Long term there's no guarantee which will work better, studies have "proven" both, and for the long term it probably doesn't matter. There have been several threads comparing LSI vs DCA as you may have read, here's the most recent http://www.early-retirement.org/for...-vs-lump-sum-doesnt-seem-to-matter-67852.html. There is no guaranteed right answer...

 

[RetireAge50]

I think you will need to make the call on this one. I think most here have a plan and are sticking with it. They are not going to sell now and then DCA back in (which is in effect is what you would be doing). Maybe invest half all at once and DCA the other half. At least you will be half right and half wrong which will cancel each other psychologically.

Good luck, also depending on your income and time horizon for the money, would make sure to fully fund the Roth IRA's

 

[dvalley]

I really appreciate the last 4 responses, thank you! It's what I was looking for i.e. a couple of options, pros and cons and especially that it really is a personal choice and no one right or wrong way. I'm just afraid of making a foolish mistake and later regreting it.

 

[Mulligan]

I really appreciate the last 4 responses, thank you! It's what I was looking for i.e. a couple of options, pros and cons and especially that it really is a personal choice and no one right or wrong way. I'm just afraid of making a foolish mistake and later regreting it.

Just curious DV, as I know you have some of capital loss fears....the 65% skinning you took from a divorce wouldn't be part of the reason you have way over half your stash parked in cash in it? In other words the fear of having to start all over again if the market drops? That thought would creep in my head if I lost that much in divorce. But as you well know, the two events are not related, though I know the results can be similarly as painful. Once you determine your proper course, and if the market drops, just consider mentally that "stocks or bonds went on sale" and you get more purchase power when making your regular contributions. You do not have to count your coins until its closer to retirement time. Just remember the obvious...you will not reach your anticipated 2025 retirement goal by having over 50% of your assets drawing less than 1% for the long haul.

 

[clifp]

DV you've got some good advice here. I'm going to be blunt.

You saved a decent amount of money by age 38, although not by the standards of those of us who did retire by 50. If your goal was to retire at 62 then you could afford such luxuries as DCA into the market over the next year or two.

But what you said is I want to retire by 50 or early 50s. In order to achieve this you are going to need to save more, invest more aggressively and yes get lucky.

With 230K in savings and the plan to save an additional $24.2 each year in order to save a $1 million in today's dollars (assuming 2.5% inflation) your portfolio needs to return 11%. Currently there is only one asset class that has a chance of delivering 11% per year and you have only ~1/3 of your money it.

I did FIRECalc run and with your current AA you have a 15.6% success over the next 47 years (12 year of working ,35 years of retirement). Moving your AA to 90% increased your chance of success to 78.1%.

If you are uncomfortable with having that much in the market plan on saving more, and working longer. I know 125K seem like a lot of money but it is only 12% of what you need.

I am sure there will be another 25+% bear market in my lifetime probably 2 if I live long. The things that is at least as likely that bear market will start from Dow 25K as it is starts from Dow 15K and you can NOT retire early with your modest savings and miss a 40% market move. Put your money in the market or change your goals.

 

[target2019]

All this aside, because I'm not the fed chairman or a rocket-scientist, I'm just wondering about how to invest my $125k into the market without regretting it? should I break it up into 20k chunks and invest it once a month or throw everything in (which is what I'm feeling uneasy about)?

My preference would be to set a time interval and break total investment into sufficient pieces so that I am comfortable placing 20K on red. Or is it black?

I think you answered your question when you mentioned feeling uneasy.

 

[nun]

I'm just wondering about how to invest my $125k into the market without regretting it?

That's a psychological question rather than an investing one.

 

[dvalley]

Thanks all, I appreciate the candid yet helpful feedback.

As for the action plan, I just stopped making additional payments towards the mortgage and will add that to my kid's college fund- the sharebuilder account investing in VTI each month.

The rest of the lump-sum I think I'll be investing it in the market in the next three months. However, since no one suggested using the cash to buy an investment property etc (which can return some nice dividends during the retirement) I'm curious why not? Is it because the general consensus is that the stock market will produce the highest returns?

As for the savings, unfortunately, I can't save anymore than what I'm trying to save ($27k/yr) already- even that's a bit of stretch but I think I can come close. So I suppose we'll just have to see what the next 10-15yrs look like.

 

[clifp]

The rest of the lump-sum I think I'll be investing it in the market in the next three months. However, since no one suggested using the cash to buy an investment property etc (which can return some nice dividends during the retirement) I'm curious why not? Is it because the general consensus is that the stock market will produce the highest returns?

Rental even with a property manager is a part time job. I have 3 out of town properties In the last 3 months.
I have evicted tenant
Spent almost 3 months rent repairing the damage to the unit.
Dealt with turning utilities on and off
Filed a police report for the theft of a water heater, filed a insurance claim
paid 3/4 of month rent in HOA violations.
Emailed HOA violation to my good tenant.
Negotiated with the HOA for fine on my bad tenant but paying tenant on my 3rd property

You can make a lot of money with real estate and it really is function of where you live and your local real estate market. Plus your skill in assessing properties, figuring out what you need to do to maximize rent, and working with contractors, and your property manager.
(I can't recommend out of town property based on personal experience)

Now there are still so good RE markets I am sure...but the time to buy was a few years ago in most markets. Even then unless you used leverage you made more in the stock market.

 

[nun]

Rental even with a property manager is a part time job. I have 3 out of town properties In the last 3 months.
I have evicted tenant
Spent almost 3 months rent repairing the damage to the unit.
Dealt with turning utilities on and off
Filed a police report for the theft of a water heater, filed a insurance claim
paid 3/4 of month rent in HOA violations.
Emailed HOA violation to my good tenant.
Negotiated with the HOA for fine on my bad tenant but paying tenant on my 3rd property

You can make a lot of money with real estate and it really is function of where you live and your local real estate market. Plus your skill in assessing properties, figuring out what you need to do to maximize rent, and working with contractors, and your property manager.
(I can't recommend out of town property based on personal experience)

Now there are still so good RE markets I am sure...but the time to buy was a few years ago in most markets. Even then unless you used leverage you made more in the stock market.

As with any investment there are ups and downs in RE. It should be thought of in relation to your desired AA and I would only buy locally and only buy quality. My experience of owning a 2 family home has been excellent and the rental apartment hasn't been vacant in the 15 years I've owned it thanks to ads at local colleges and on Craigslist.