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401k -> IRA
Old 12-25-2013, 08:45 AM   #1
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401k -> IRA

Just finished transferring a significant sum over to an IRA from my prior employer due to fees and it occurred to me.....should I be dollar cost averaging in or simply take the entire amount and choose the same AA that I had with the 401k which was 20/80 bond/stock? Won't need to access these funds for 20 yrs. Depending on who you ask we are due for a correction. Not trying to time the market, but does anyone think it makes sense to place say 8-10% into my target AA for 12-14 months?
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Old 12-25-2013, 09:08 AM   #2
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You could do either, but if you were happy with 80/20 a few weeks ago, whould you be unhappy with 90/10 now? That would suggest going back in to put yourself in the position you were before the transfer.

Alternatively you could value average in over 6-12 months. You won't know which was better until sometime in 2014.
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Old 12-25-2013, 09:48 AM   #3
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There is simply no "right answer" for the same reasons timing the market isn't reliable. But in the long run LSI vs DCA will yield almost the same results, so making an emotional choice is OK. You will find many people here how have invested lump sums, and many who used dollar cost averaging, nothing wrong with either.

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

Why to Dollar-Cost Average a Lump Sum - On Retirement (usnews.com)

Quote:
Markets are volatile. The math says a lump sum investment will win more often, but there's always a chance that the buy order will be made right at a short-term peak. The worst outcome isn’t the financial hit, but the emotional one. How will you react if the market declines 10 percent, effectively wiping out a huge portion of your liquid assets? Will your resolution to keep invested in the volatile markets waver? After all, your savings rate and discipline in staying the course will ultimately influence your chances of a comfortable retirement the most. Don’t let anything undermine this.
And if you Google, there are endless articles comparing LSI vs DCA. I've just chosen two above...
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Old 12-25-2013, 03:45 PM   #4
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Thanks....I think too much.....or not enough.
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Old 12-25-2013, 04:05 PM   #5
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Originally Posted by Tgancarz View Post
Thanks....I think too much.....or not enough.
You're not the first to ponder LSI vs DCA, and you won't be the last. Take comfort in knowing odds are it probably won't make much difference, especially given your 20 year window.
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Old 12-25-2013, 08:06 PM   #6
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Ideally I'd like to make the transfer without selling anything, a transfer in kind. Barring that, I'd try to buy back what I'd sold, or their replacements, at the same price at which I'd sold. So if the market is down a little from when you sold, I'd lump sum back in. Just like you'd never sold, hopefully. If the market is not cooperating, I'd DCA in just to make sure I don't get stuck out of the market completely.

I have no problem with a big market drop. I never would have sold all my 401k funds to try avoid one. The big problem is if the market just keeps heading up and you miss maybe 5% average gains just because you took so long to DCA back in. That would bug the heck out of me, and makes the IRA transfer very expensive. For that reason, you might consider just lump summing back in even if the market is a little higher than when you sold.
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