Sitting on a lot of cash now

[dm]

I finally got my 401k rolled over to my IRA. And I'm getting ready to move and buy another home. Due to these factors I'm sitting on 85% cash. Now I'm having a hard time pulling the trigger and getting back into the market. I'm generally about 60/40.

I know this is just market timing and I should just go ahead and invest in one lump sum. I'm only setting on a 1.5% gain for the year. But its sure is hard to do it when the market is hitting highs.

Due to getting ready to move, I havn't even found a house yet, I think I'm just going to let things sit for a couple of months. Then I'll start averaging in.

Seem reasonable?

 

[Midpack]

As you know, there is no way to predict whether lump sum, DCA and/or waiting to implement either will be best in any given situation - but all are defensible approaches. So do what makes you comfortable (what makes someone else comfortable is secondary at best), you'll have to live with the decision short term no matter what. And in the long run it probably won't make much difference.

 

[W2R]

dm, my situation may be a little similar to yours. I am sitting on more cash than usual too, because I am thinking of moving in a couple of years and want to be able to purchase the next house in cash before selling this one.

What I am planning to do is to sell more after the first of the year so that I have even more cash next year. (I am waiting in order to minimize the tax hit for this year's income.) Then, after buying the next house and moving, and settling in, and selling my old house, I will just DCA any leftover money back into my portfolio.

 

[Ready]

It's a tough situation to be in. Historically speaking lump sump has beat DCA, but psychologically it is very difficult to put all your money into the market at any one point in time. I doubt I could do it, even if history tells me to.

 

[RetireAge50]

I'm not sure it is reasonable. In other words you are saying I should sell 85% of my portfolio now then in a couple months DCA back in? Might be good plan but might not. How often do I do this strategy? Markets are at highs often as historically they just keep going up.

I would keep the house money in online savings account until you decide but get the long term money invested immediately in your desired asset allocation. Obviously this is only my opinion.

 

[karluk]

Based on this recent post of yours, it appears that your 401k was closed out on April 9. If so, you are in a fairly good position to do a lump sum investment in your IRA. Stocks are almost completely flat since April 9, so you can reestablish your 401k stock allocation in your IRA with a reasonable expectation of neither gaining nor losing much by being out of the market for several weeks.

In my view this is the right way to go, even though you admittedly may get a lower price by waiting. If you use the transfer of funds from the 401k to the IRA as an excuse to remain out of the market for the time being, then you really are converting a straightforward rollover into an exercise in market timing.

http://www.early-retirement.org/forums/f28/its-better-to-be-lucky-than-good-71513.html#post1437324

 

[Animorph]

One thing that I like to do is to wait until I can buy back the shares I had to sell for less than the selling price. This might happen if I'm trying to move ETF shares from taxable to IRA, for instance. Or if you aren't replacing the exact shares, wait until the comparable index returns to the same price at which you sold. Then you are no worse off than if you hadn't sold at all. Optionally, you might try to make up any commission costs for both transactions.

For small stuff, just 1% of portfolio say, which doesn't seem to apply here, it's likely that even a 5% swing in price is a small absolute number of dollars and you might just hold your nose and do the lump sum thing even if you're losing money on the whole round trip transaction.

At least for small gains/losses it is very unlikely you'll never see your selling price again, although that is obviously a possibility. That's where you need to DCA eventually.

 

[retire2020]

Last year around this time I was in a same boat. I had sold everything and was sitting on cash of 2.4M for two weeks. My advisor and I then discussed all possible way to get back into market and agreed on lump sum investment. Advisor's reasoning was lump sum because I was cutting down my risk from 75/25 to 65/35. As you can see that move worked in my favor but could've easily gone other way. Nobody knows and no one can predict Market timing…last year around same time everyone was talking 10-20% correction and today same prediction floating around.

 

[mrfeh]

Based on this recent post of yours, it appears that your 401k was closed out on April 9. If so, you are in a fairly good position to do a lump sum investment in your IRA. Stocks are almost completely flat since April 9, so you can reestablish your 401k stock allocation in your IRA with a reasonable expectation of neither gaining nor losing much by being out of the market for several weeks.

+1

If you were in the market a month ago, why wouldn't you want to be in it today?

 

[pb4uski]

There was a recent thread on this topic but I can't seem to find it.

 

[Brat]

Were I you I would simply purchase Wellington or Wellesley mutual funds (one is 60/40, the other 40/60) in my IRA and call it a day.

 

[dm]

I know it doesn't make sense, its just hard to just jump back in now that it is sitting in cash. My 401k was invested in American Funds, Balanced and small cap world. My IRA is at Vanguard. I currently have a target date fund, dividend appreciation, and Wellesely.

I'm thinking I'll go ahead and start putting the majority of it into the target date fund and leave it at that. I'll still probably do it over a couple of months. My after tax money is going to stay in cash till I find a house and figure out where I am with that.

 

[Midpack]

I know it doesn't make sense, its just hard to just jump back in now that it is sitting in cash. My 401k was invested in American Funds, Balanced and small cap world. My IRA is at Vanguard. I currently have a target date fund, dividend appreciation, and Wellesely.

I'm thinking I'll go ahead and start putting the majority of it into the target date fund and leave it at that. I'll still probably do it over a couple of months. My after tax money is going to stay in cash till I find a house and figure out where I am with that.

Nothing wrong with that...

 

[Animorph]

I know it doesn't make sense, its just hard to just jump back in now that it is sitting in cash. My 401k was invested in American Funds, Balanced and small cap world. My IRA is at Vanguard. I currently have a target date fund, dividend appreciation, and Wellesely.

I'm thinking I'll go ahead and start putting the majority of it into the target date fund and leave it at that. I'll still probably do it over a couple of months. My after tax money is going to stay in cash till I find a house and figure out where I am with that.

I have the opposite reaction, scared if I sit out of the market. I try to stay at my AA though all of these sideways transactions. Hopefully I can roll over DW's 401k in-kind. If not, I'll be stressed until I can get it back into the market. Not that that will stop me trying to buy lower than I sold at. But I won't be looking for a big gain either.

 

[foxfirev5]

I would suggest separating the house funds and invest the rest according to your long term AA. Keep it simple.

 

[Fermion]

If you are normally at 60/40 I wouldn't be too worried. That is pretty conservative.

Last year if you sat out starting in May you missed a good 15% run.

 

[robnplunder]

Sitting on cash for a prolonged period can be hard on your behind. I recommend wrapping your cash with pillow cushion for your sitting pleasure.

TGIF!

 

[heeyy_joe]

What and where trumps when.

 

[truenorth418]

If conflicted, you might want to consider lumping in a third or half the cash, then DCA the rest. And if the market tanks, you can accelerate the DCA by doubling the monthly amount.

 

[gerntz]

I'd rather be sitting on a lot of Au vs. a lot of cash. Cash is variable. Au is fixed. An ounce is an oz.

 

[AnIntentionalRoad]

I received some six and seven figure lump sums each year starting in 2010 through 2013. I decided to DCA them into the market. If I had just lump summed them all when received each year, it would have been a net gain of about 300-500k. A tough lesson to learn.

If I ever have this opportunity again I will invest the whole lump sum immediately and then buy some put options about 10% under the market price to protect me from a sudden disaster. That will be real cheap insurance and piece of mind.

 

[audreyh1]

It's always a tough call. I was always really glad I chose to DCA at the start of 2000, and that I chose 2 years as my time frame. The late 1999 extreme market metrics made me extend the time frame from one year to two (as well as avoid lump sum in the first place). I was switching from a single (employers) stock to a broadly diversified AA.

It actually took three years for the market to bottom and start to turn around. I kept stretching out my DCA window - my final installment was in Oct 2002.

I found that quarterly was a good interval. Started out monthly, but quarterly was easier.

It all worked out - but dang!

 

[pb4uski]

I'd rather be sitting on a lot of Au vs. a lot of cash. Cash is variable. Au is fixed. An ounce is an oz.

No way for me.

AU is fixed? An ounce is an ounce but what you can buy with an ounce varies greatly. How has it worked out for you the last couple years?

 

[gcgang]

No way for me.

AU is fixed? An ounce is an ounce but what you can buy with an ounce varies greatly. How has it worked out for you the last couple years?

Great point, pb. Since gold is down so much, now must be a good time to buy.

 

[gerntz]

No way for me.

AU is fixed? An ounce is an ounce but what you can buy with an ounce varies greatly. How has it worked out for you the last couple years?

What you can buy with cash varies also. Ever look at stock & home prices over time? Give me an ounce and $1300 & let's see what each buys in 10 years. Hint: Au is 400%+ in dollars since 2000.