Lump sum or DCA

[Eyerishgold]

My partner and I are early 40's with a net worth of around 6MM including my business. Closer to 3.25MM liquid with a paid off primary residence.

It has taken us 20 years of regular investing to get to this point. She's an executive at her company, which just sold. She got a fairly sizeable bonus, ~450k is what she took home. I don't know the best way to handle this.

I'm wondering if we should invest it all at once or if we should DCA over the next year or so. I know we shouldn't try to time the market but I'm leery about investing it all right now even though it may be the best option.

I guess I'm just looking for advice on how best to handle this windfall.

 

[SevenUp]

The only way to know "best" is to use hindsight or a working crystal ball.

Whatever you choose is practically guaranteed not to be best, so either way you will likely be able to say "if only I had _____ instead of _____."

Based on historical statistics, on average the market goes up, so lump sum would be the statistical choice. But DCA over several months is not unreasonable.

 

[explanade]

Market was at all time highs just a couple of months ago.

It's come down some but still high historically.

Does that change the equation about lump sum vs. DCA?

I know, you can't time the market and all that.

 

[The Cosmic Avenger]

The only way to know "best" is to use hindsight or a working crystal ball.

Whatever you choose is practically guaranteed not to be best, so either way you will likely be able to say "if only I had _____ instead of _____."

Based on historical statistics, on average the market goes up, so lump sum would be the statistical choice. But DCA over several months is not unreasonable.

Exactly this. Just pick one of those options, and instead of saying "I would have had $X more if I had only done [option A] instead of [option B]!", you can tell yourself "At least I did [option B] instead of doing nothing!", and the difference between doing nothing and doing A or B is probably a whole lot bigger than the difference between A and B.

 

[target2019]

When I invest spouse's money I use the Directed IMP method.
1) 10% invested in month 1
2) 5% fee in my pocket
3) 10% invested in month 2
4) 5% fee in my pocket
and so on.

 

[FLSUnFIRE]

I don't like being out of the market but also hate buying in lump... statistically it is best lump sum but my life is a sample size of 1! What I am doing with my HSA (liquidated to roll over as the market continued to rise over the 6 months or so the process took) is DCAing monthly over a 2-year period and to accelerate it, any month that the market is down 1% or more from the prior EOM, I am adding an extra month's worth of investment. The silly games we play.

 

[RunningBum]

Would you sell $450K of your investments and then average back in? If not, why is this $450K bonus different from $450K already invested?

 

[W2R]

I usually DCA large lump sums like this. The reason I do it, is so that I won't choose the exact worst time to invest the money. OK, so I won't choose the exact best time either, true. Still, for some illogical reason I feel better since I'm not down on myself for picking a bad time to invest all of it.

 

[tulak]

There’s no right answer. Do what makes you feel the most comfortable.

Statistically, you’re better off lump sum. That’s what I did in 2008 and my timing was bad. It worked out fine though.

I’d probably DCA, but I’d do it over a shorter time frame, within a year. If there was a sizable drop, then I’d probably buy more on the dips (accelerate my DCA).

 

[target2019]

This is a ling to a study performed by North Western Mutual.
https://www.northwesternmutual.com/...ost-averaging-better-than-lump-sum-investing/

The results show that on average you will outperform with a lump sum.

However, is your decision today in the current market going to show that outperformance? I have no idea. Only one way to find out.

 

[oldtimer]

Lump sum half now and DCA the other half over some time period. Evaluate once DCA is complete and report back here the results.

 

[racy]

S&P 500's high was January 3rd at 4796. Yesterday, 2/22, it was 4304. That's a 10% decline from the high. Enough of a pullback to invest a lump sum? Only you know what you're comfortable with.

 

[retire2020]

I always had lump sump approach and it worked mostly in my favor. If you do not feel comfortable then go try Value Cost Average method - may be over 12-24 months. I tried for my brother(he was not comfortable for lump sum) and it worked out in his favor.