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Too Much Cash
Old 08-12-2015, 06:43 AM   #1
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Too Much Cash

Due to the proceeds of a recent sale of a house, I have about $200,000 in cash I need to get back into the market where it will start working for me instead of sitting at the credit union money market account where it is temporarily parked, earning next to nothing. I already have my asset allocation of cash at the percentage where I normally keep it, excluding the proceeds of the sale of the house.

At this point I'm looking for advice and opinions whether to put the $200,000 back into the market at my chosen asset allocation, all at once, or income average it in over 6 months, one year, or longer. Or, given the current state of the market, maybe hold more in cash than my standard asset allocation.

I could retire now, but am presently inflicted with OMY syndrome, if that makes a difference.

As always, any and all advice and opinions are welcome.

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Old 08-12-2015, 06:52 AM   #2
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This is a common question and there are other threads on it. This is what I would do. First, get in into an online savings account so it is at least earning something (mine is 0.95%). Second, I would value average it in over a period of time.

So for example, if you want to put it in over 6 months then invest $33k now, a month later add whatever you need to to bring the balance up to $66k, a month later add whatever you need to to bring the balance to $99k and then repeat with the balance increased $33k each month until the $200k is fully invested. What happens is when prices are relatively low you invest more and when prices are relatively high you invest less.

In theory, it is best to go all in at once, but many people prefer to get in gradually and value averaging is a good way to go.

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Old 08-12-2015, 07:03 AM   #3
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If you don't need the cash go all in on a total stock market or S&P 500 index mutual fund and forget about it. Just my two cents.
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Old 08-12-2015, 07:22 AM   #4
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As others have pointed out, there are several good ways to handle this situation and the choice is up to the individual. The best approach in a statistical sense (investing all of it immediately) may or may not be the best approach for you.

Barring the unforeseen, in a couple of weeks I'll be in about the same position as you, for the same reason. I haven't decided yet how I will handle it but understandably I would not be happy if the stock market crashed severely right after I invested the whole amount. So, I'll probably invest 1/5 of the proceeds of my house sale during the first week of each of the next four months (Sept, Oct, Nov, and Dec).

During the first week of January I generally withdraw my spending money for the entire year to follow, and then rebalance. So, with the 1/5th left, I could do that, hopefully without having to sell anything this time. Then if there is any left, I would invest it then.
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Old 08-12-2015, 07:43 AM   #5
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We sold and closed on our second home a few days ago so I'm in the exact same situation. We recently retired and I've got our AA setup and have a cash reserve already set aside. Now I have to figure out how to invest the proceeds from the sale. I know that statistically, investing it all in a lump sum has a higher probability of earning more. Still, I can't do it. It would cause me many sleepless nights. To me, the potential gains are not worth the mental anguish.

I'm going to put the 200K in a Ally saving account until I figure out the best course of action. I'm thinking I will fund our Roths, buy some IBonds, set aside one year of spending cash then dollar cost average the rest into the market over the course of 6 to 12 months.
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Old 08-12-2015, 10:13 AM   #6
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Since ER, I've been liquidating my remaining employee stock options over the last few years, including a very large chunk right at the beginning of 2014. Very glad I got that cash invested at the time. IMHO, if you believe in your AA, then just go all in. I'm not a fan of sitting on cash... feels too much like trying to time the market, which is just as likely to go good or bad. If stocks or bonds go bad 6 months down the road, then rebalance and be happy. Seems to me, that's about the same as DCA, but without idle cash sitting around with no chance of doing anything. There's nothing wrong with stocks and bonds doing their normal thing. What's wrong is not rebalancing when you should, and that's where you are with all this cash. Unless this has suddenly caused you to rethink your AA, I'd go all in at once. But that's me. I certainly understand the emotional hesitancy expressed by others.
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Old 08-12-2015, 10:29 AM   #7
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I would take advantage of the current market volatility. You don't have to go all in, but this is looking like an excellent entry point.

I am wading back into the water during this down tick, but will stick to etf's and mutual funds, but not individual stocks.
Prepare today for the demands of tomorrow. Plan your move.
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Old 08-12-2015, 10:33 AM   #8
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That's enough for funding 30 years of Roth contributions...

I would open a brokerage and start there. Then plan out the exact steps to make periodic contributions to funds, etfs or stocks that support my current investment plan and AA. Since it's a taxable account I would look for tax efficiency:

Securities in approximate order of tax-efficiency.
15 Hi-Yield bonds (least tax-efficient)
13 Taxable bonds
12 REIT stocks
11 Stock trading accounts
10 Balanced funds
9 Small-Value stocks
8 Small-Cap stocks
7 Large Value stocks
6 International stocks
5 Large Growth stocks
4 Most stock index funds
3 Tax-Managed funds
2 EE and I-Bonds
1 Tax-Exempt bonds (most tax-efficient)
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Old 08-12-2015, 10:42 AM   #9
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All at once.

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Old 08-12-2015, 10:46 AM   #10
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I would dollar cost average, starting immediately. Find your optimal AA, then follow up to get there, adding where you need to.
I've been putting some of my cash to work lately, buying into these recent dips in sectors that need to be shored up. Today has been busy.
The bulk of the remaining cash is in GE Capital which is yielding 1.05% I consider it dry powder.
I also keep about 1.5 years expenses in a money market.
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Old 08-12-2015, 11:02 AM   #11
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I'd park it in cash for now, then if you believe the next US President will be a Republican, dollar coast average (DCA) into stocks this auturm. If you think the next President will be a Democrat, DCA in next autumn. This will put you ahead of the historically strong influence of Prez elections on equities.
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Old 08-12-2015, 11:04 AM   #12
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DCA vs Lump Sum Investment ~ Your Thoughts?

Lump sum investing - DCA or invest all at once?

for just a couple of the many threads on the topic. Rather than restate my views I'll just say that you can read those threads, and then do whatever feels right to you.
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Old 08-12-2015, 11:19 AM   #13
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One thing to do with free cash is to pay the taxes on Roth conversions. Look for other discussions on this topic if Roth conversion might be in your future. Paying the tax with already taxed money is a way to bump up the value of your Roth vs your tIRA. Details elsewhere if you are interested. YMMV
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Old 08-12-2015, 11:22 AM   #14
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If I had your nice problem, I would invest the entire 200k over the course of a year. Why? The market seems kind of high at this point. I invest whatever the market conditions are. You would be doing the same. If the market did take a big tumble you would certainly be buying at lower prices for future gains. That is my opinion.
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Old 08-12-2015, 11:38 AM   #15
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I was in your position a few months ago. After a lot of research I felt a deferred annuity was right for me.
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Old 08-12-2015, 12:03 PM   #16
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Normally I would buy whatever balanced my AA, immediately.

However, if you feel you are close to a portfolio-funded retirement, having a couple of years or more expenses in cash can be useful. If you spend all the cash before you start living off your portfolio the impact on your investment gains through retirement will be small. And it provides that buffer in case your portfolio crashes early on.
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Old 08-12-2015, 01:32 PM   #17
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The U.S. stock market's dropping fast due the Chinese devaluation. Whatever you do, go to your broker and do it now.

How about a S&P 500 ETF for a goodly portion?
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Old 08-12-2015, 03:45 PM   #18
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I would invest it all right now, per my usual asset allocation. For long term investing, DCA is just too much trouble, IMHO.
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Old 08-13-2015, 12:50 AM   #19
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What percent of total portfolio is it?
If you are already at optimal AA and have a cash reserve then I would go all in at once.
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Old 08-13-2015, 01:25 AM   #20
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Wait until September. There are some prophecies - taken seriously by Christians and Jews - that the stock market will crash in September 2015. If they take their money out it could become a self-fulfilling prophecy and then everything would be on sale.

Dave Ramsey has been alluding to this a lot lately, trying to tell his Christian audience how stupid they are to believe in such things. But the frequency of his references to it just show how pervasive the beliefs are.

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