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08-12-2015, 06:43 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Oct 2013
Posts: 1,187
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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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08-12-2015, 06:52 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,376
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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.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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08-12-2015, 07:03 AM
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#3
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Thinks s/he gets paid by the post
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,895
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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.
__________________
Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
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08-12-2015, 07:22 AM
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#4
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,501
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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.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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08-12-2015, 07:43 AM
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#5
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Recycles dryer sheets
Join Date: Jan 2014
Posts: 414
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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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08-12-2015, 10:13 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Jul 2012
Location: Texas
Posts: 3,024
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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.
__________________
Retired at 52 in July 2013. On to better things...
AA: 85/15 WR: 2.7% SI: 2 pensions, SS later
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08-12-2015, 10:29 AM
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#7
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Recycles dryer sheets
Join Date: Nov 2013
Location: baton rouge
Posts: 141
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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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08-12-2015, 10:33 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,725
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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)
14 TIPS
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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08-12-2015, 10:42 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Jun 2014
Posts: 1,069
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All at once.
Sent from my iPhone using Early Retirement Forum
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08-12-2015, 10:46 AM
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#10
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Full time employment: Posting here.
Join Date: Aug 2013
Location: https://www.google.com
Posts: 750
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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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08-12-2015, 11:02 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,906
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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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08-12-2015, 11:19 AM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,930
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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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Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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08-12-2015, 11:22 AM
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#14
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Thinks s/he gets paid by the post
Join Date: May 2014
Posts: 1,390
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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.
__________________
Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger
The first rule of compounding: Never interupt it unnecessarily. Charlie Munger
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08-12-2015, 11:38 AM
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#15
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gone traveling
Join Date: Jun 2015
Location: seattle/dahlonega
Posts: 77
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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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08-12-2015, 12:03 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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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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08-12-2015, 01:32 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2014
Location: Huntsville, AL/Helen, GA
Posts: 6,002
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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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08-12-2015, 03:45 PM
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#18
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Dryer sheet aficionado
Join Date: Mar 2014
Location: Hot Springs, Arkansas
Posts: 26
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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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08-13-2015, 12:50 AM
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#19
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gone traveling
Join Date: Oct 2007
Posts: 1,135
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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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08-13-2015, 01:25 AM
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#20
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Confused about dryer sheets
Join Date: Jan 2015
Posts: 2
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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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