I wonder if I should have done it differently - Windfall investing

[Cpadave]

In mid October we received a large distribution from investment in private equity holding. After putting aside the tax, I invested the reminder based on our asset allocation of 60/40. Even Though I knew market was at rich valuation at the time. I did not want to time the market. The unrealized loss on the new investment is hurting our performance big time. Should I have put the money in over a period of time? Of Course if the market had moved up since then, I would have not been wondering if it was a right decision.

At this point I might try to harvest the loss by selling my VTI and going into VOO toward the last week of trading.

[Dtail]

There are definitely fans on this site of DCA strategies, but I believe there has been some data showing that it is not necessarily an advantage vs. all at once investing.

[Jerry1]

All you can do is look forward. Therefore if harvesting some losses will benefit you and is in line with your over all strategy, then do that. Otherwise, stick with your plan. While it seems we’re in a bad market, no one knows for sure. One thing I read about market timing was that if you were out of the market on just a few critical days, then you lost. In other words, the market can move quickly and drastically. You didn’t think you should time the market going in, why time it now?

[RunningBum]

I agree with moving forward.

Here's an interesting thought. A good number of people here would've advised you to DCA going in. But since you dumped it all in, if you sold now, you'd be a dirty rotten market timer. You're the same person in the same situation, but in one case it's apparently ok to keep a lot of your money out of the market, and in the other case it isn't. That's my beef with DCA. My thought is that your protection against downturns is to have an AA with a market exposure you can live with if it drops, but takes advantage of gains. DCA is just a feel-good method of not making a big active decision to buy that could backfire if the market drops, while if you are fully invested you make a passive decision to stay invested even though it could backfire just as much with a market drop.

Tax loss harvesting is not a bad idea. Remember that if your losses outweigh gains you can only take a $3K loss and carry over the rest to the next year, but that could be useful too, especially if you have reason to manage your income. I did some tax loss harvesting myself this year, and have also kept that out of the market until end of year distributions come, so that I can do a little more Roth conversion.

[street]

If it were me I would just wouldn't do anything. It's going to hurt if markets go down but you haven't lost anything, unless you sell. I would hold tight and ride out the storm.

[Cpadave]

Thanks for the reply. At no point I am suggesting that I want sell now and do DCA over period of time nowt. Only option I am considering is tax loss harvesting, by selling one fund and buying another right away. My question is more on going forward if we have another big distribution. Does one consider how expensive the market is or just never time the market and go in at once.

[RunningBum]

Quote:

Originally Posted by Cpadave Thanks for the reply. At no point I am suggesting that I want sell now and do DCA over period of time now

Sure, I see that. Since you expressed some second thoughts about investing in full, I was just putting it in a way to alleviate those thoughts.

[kgtest]

Quote:

Originally Posted by Cpadave In mid October we received a large distribution from investment in private equity holding. After putting aside the tax, I invested the reminder based on our asset allocation of 60/40. Even Though I knew market was at rich valuation at the time. I did not want to time the market. The unrealized loss on the new investment is hurting our performance big time. Should I have put the money in over a period of time? Of Course if the market had moved up since then, I would have not been wondering if it was a right decision. At this point I might try to harvest the loss by selling my VTI and going into VOO toward the last week of trading.

Ahh, buyers remorse. Happens to the best of us. Depending on your time left on earth, likely it will be a mute point in the distant future. You could buy this dip to offset some of the higher priced shares...normalizing the loss a little.



"He who dies with the most shares, dies with the most shares." -unknown

[VanWinkle]

Quote:

Originally Posted by street If it were me I would just wouldn't do anything. It's going to hurt if markets go down but you haven't lost anything, unless you sell. I would hold tight and ride out the storm.

I agree with street on this, other than tax loss harvesting which will lessen
the sting of the paper loss. Selling a recent loser and buying a non-identical replacement fund will put you in the same position, but with a tax advantage. I harvested 8000.00 in losses just in my International fund since October. I am still invested with no "real" losses. Just remember to turn off dividend reinvestment so you don't get a wash sale from the same investment you are harvesting.

[pb4uski]

Quote:

Originally Posted by Cpadave Thanks for the reply. At no point I am suggesting that I want sell now and do DCA over period of time nowt. Only option I am considering is tax loss harvesting, by selling one fund and buying another right away. My question is more on going forward if we have another big distribution. Does one consider how expensive the market is or just never time the market and go in at once.

I think you did the right thing... you just got unlucky on the timing... that is the way it works sometimes.

I would harvest the tax losses and consider harvesting gains to offset them to the extent that you have unrealized gains in your taxable account... in effect resetting the basis of all your taxable investments to zero unrealized gains/losses.

I think I would do this even if I expected to be in 0% LTCG bracket because doing so would then clear more headroom for Roth conversions or tIRA withdrawals to reduce the size of the tax torpedo once SS and RMDs start.

[flintnational]

The key word in your post is "windfall". Congratulations! But, then I am a glass half full kind of guy.

One of the reasons most of us have a set asset allocation and annual re-balancing rules is that we do not know what the market is going to do. But we now over time, if we stay the course and don't try to outsmart the market, we will likely be rewarded. You acted prudently.

[GravitySucks]

I had a large bit to invest in 2013 and was DCA ING because all the great minds were saying the market was overpriced then. After 5 months or so I got tired of missing out on the upside and put it all in. I got lucky, looks like you might be unlucky, or we could be back to a win for you in 6 months. No one really knows.
Sometimes maybe the market times us.

[RunningBum]

Quote:

Originally Posted by GravitySucks I had a large bit to invest in 2013 and was DCA ING because all the great minds were saying the market was overpriced then. After 5 months or so I got tired of missing out on the upside and put it all in. I got lucky, looks like you might be unlucky, or we could be back to a win for you in 6 months. No one really knows. Sometimes maybe the market times us.

That's my other issue with DCAing. You can edge in while the market is still rising, then as soon as you are in fully the market can tank. So you miss a lot of the upside and participate fully in the downside, if that happens. Either try to hold a consistent AA or try to be a market timer, but trying to be some of each doesn't seem to be a good strategy.

[joeea]

Quote:

Originally Posted by Cpadave In mid October we received a large distribution from investment in private equity holding. After putting aside the tax, I invested the reminder based on our asset allocation of 60/40. Even Though I knew market was at rich valuation at the time. I did not want to time the market. The unrealized loss on the new investment is hurting our performance big time. Should I have put the money in over a period of time?

Were you investing for the long haul, or for a few months?

If the former, don't worry about it. In the long term, you won't care what happened in December 2018.

[dtbach]

Agree with others that in the long haul it's not going to matter much. I was moving a large amount of money from a former employers 401 to Vanguard about 1994. The guy on the phone was concerned that I was putting all of it Primecap all at once. It went down for a bit but after 24 years I'm totally good with having done what I did.

[HadEnuff]

Assuming your time-horizon is such that your chosen AA for your other money was well thought out, and you don't need to touch this money sooner than you expected, I think with time you will be glad you did what you did.

If the AA is good enough for the money you had prior to the windfall, why wouldn't it be good enough for the windfall money?

[Cpadave]

Thanks for all the replies. The investment was for long term over 10 years. I guess you win some and you lose some. All sound advice and comments.

[joeea]

Quote:

Originally Posted by Cpadave Thanks for all the replies. The investment was for long term over 10 years. I guess you win some and you lose some. All sound advice and comments.

You haven't lost anything yet.
You'll know for sure in 10 years.