Suffering from a little paralysis

[DawgMan]

I am trying to follow "rules" I have set up for myself in order to apply discipline in my investing and remove the emotion and the inner demon in me that wants to be a market timer. I have the fortunate problem of sitting on some significant new cash that has accumulated over the last 12 months or so due to a very profitable run in my business (over 7 figures in cash). While my rules have me re-balance once a year to my 60/40 allocation (currently sitting at 56/44 due to excess cash), I am finding myself somewhat paralyzed as I would like to get this cash properly allocated. Additionally, I wanted to take this opportunity to make my portfolio a little more tax efficient (portfolio is roughly 50/50 after tax/tax differed). In particular, my rules are telling me to shift more $$ to my international allocation whereby both the "market experts" are saying "AVOID" and my Spidey sense is telling me now is not the time. My master plan has me launching into RE at the end of this year (which I may or may not do if I am still enjoying my biz), so I am a little more sensitive to current market conditions/sequence of return risks. What would you do...

Hold your nose and plow all of the cash in per your rules?

Dollar cost avg in over say 6 months?

Be a market timer and wait for big dips to reallocate?

Go conservative for the next 12 - 18 months and plow the cash into bonds?

I know I know... no one can predict the markets so stay the course, follow the rules I set for myself. None the less, I am stuck in indecision mode... talk me off my ledge!

 

[Byb747]

If I were you, I would participate now with half of the capital and then be a bit more of a timer with the rest of it. This way, you participate in any upside and can average down in these uncertain times. Just my 2 cents, which mean nothing..lol. Good luck

 

[flintnational]

There are several reasons I have allocation and rebalance rules that I stick with.

1) When I chose our AA, I heavily researched the strategy and knew it was a multi-decade plan. Short term performance would be better or worse than the market. Without a material reason to change the plan, I stay the course. (My value and international allocations have under performed for years. Yet, I stay the course. My reasons for my AA are still valid.)

2) A set allocation keeps me from making investment decisions. Statistically, most that try to time the market or out preform the market fail.

3) A set allocation keeps me calmer. I do not have to worry about what to do.

4) By following the rebalance rules, I am forced to buy the cheap stuff. (often the cheap stuff smells bad and we would not do it without rules) I will rebalance in July and buy more stinky international!

As far as the lump sum, I think you need to decide if you will need it for the RE investments. If not, I would either move it into the market now or over the next 12 months in equal sums.

Glad your business is doing well.

 

[Col. Klink]

Don't try to time the market. If you truly had "Spidey sense" with respect to market timing you wouldn't be asking the question. I suggest you commit to making a regular investment on a given day once or twice a month into both equities and bonds / preferreds and maintain the 60 / 40 allocation you appear to be comfortable with.

 

[Lsbcal]

First of all, don't feel bad about your indecision. I think many of us, even with firm rules in place, still feel some anxiety about even following the rules (which we set up...haha).

Some people can set and forget but not me and maybe not you.

Anyway, if you want an opinion, I'd currently go with US stocks and not international. I base this on a market timing approach is not too different then one that is out there in book form. I've been out of the internationals for 1.5 years and most of the last 10 years. But since you have not set this up as your rules, probably you should ignore my thoughts on this issue.

Since the yield curve is inverted, I'd personally wouldn't increase risk. But I'm following my rules. You might consider what rules will minimize your anxiety and maximize your performance. That could mean rule changes.

I am sure others will not like my advice, especially buy/holders.

 

[LOL!]

The month of May was a big dip for many people, so you don't have to wait for a big dip. That is, your waiting is over.

Since you didn't realize it, I'd say just invest now and not worry about losing money.

 

[W2R]

Don't try to time the market. If you truly had "Spidey sense" with respect to market timing you wouldn't be asking the question. I suggest you commit to making a regular investment on a given day once or twice a month into both equities and bonds / preferreds and maintain the 60 / 40 allocation you appear to be comfortable with.

+1

In the past, when I had had big sums to invest, my rule has always been to DCA into my usual asset allocation, over 6 months or so. So, I would vote for that one, for me anyway.

Whatever you decide on, it's generally best to avoid market timing.

 

[HI Bill]

Dollar cost avg in over say 6 months?
Be a market timer and wait for big dips to reallocate?

Are you still planning to RE this year?

If so, I'd probably just dollar cost average over 12 months, waiting for a dip during each month, leaving the $ in the VG money market fund earning ~2% in the meantime. FWIW.

 

[DawgMan]

Thanks all. Appreciate the feedback. I suppose I will make a call here as it relates to DCA in the cash or allocating accordingly.

Lsbcal - I used to be a "no international" guy as I believed I was getting enough exposure through US companies who did business abroad. After consuming the wisdom of others (including some on this site), I became convinced I should have a more substantial international allocation closer to 20% split in different % between Large Cap Blend/Large Cap Value/Small Cap Blend/Small Cap Value/Emerging Markets (somewhat my version of Paul Merriman's approach). That said, I struggle with this when I look at the last 10 yrs of returns for these categories.

How do most of you cut and slice your international allocation (if you have one) and do you still feel good about it's role in the long term?

 

[LOL!]

In my international, I tilt to small-caps by using VSFAX / VSS (Vanguard foreign small-cap index) and DGS (Wisdom Tree emerging markets small-cap), but I do NOT overweight emerging markets: I have less large-cap EM to compensate for more small-cap EM. Basically, 50% of my international funds are small-caps.

I don't feel good about the role of international in the long term, but I don't let emotions control my investing.

In other words, I don't need to feel good about my investments.

 

[W2R]

How do most of you cut and slice your international allocation (if you have one) and do you still feel good about it's role in the long term?

I don't cut and slice it. My international is mainly in an index mutual fund, Vanguard's FTSE All-World Ex-US Index Fund (VFWAX). It is 11% of my portfolio. My AA allows a total of 42% for equity funds.

At times, I have felt like that was too much international, and at times I have felt it wasn't enough. But I don't budge.

It is probably a lower percentage than many people have, because in the long run I have more faith in my US investments than in international.

 

[dtbach]

I'm at 10% International and 57% US in equities. The rest is 25% Bonds, 4% annuity and 4% cash. That has worked well for over 10 years and is what I stick to. I'd look at your allocations and if it feels good, just do 10 monthly buys into your sectors.

 

[Winemaker]

Unless the cash is more than 5%+ of portfolio, I would leave it in cash, and use it for withdrawals and future RMDs. 1) If you put it in the market and win, the existing allocation you have, is a winner. You lose because of the lost appreciation, but a roll of the dice. 2) You invest in CDs, and it goes down, you win, because you have your withdrawal/RMD already waiting for you, no selling at a loss.

 

[pb4uski]

I target 60% in total equities.... 42% domestic and 18% international.... so international being 30% of total equities. Not a winning strategy since 2008, better from 2000 to 2008.

...How do most of you cut and slice your international allocation (if you have one) and do you still feel good about it's role in the long term?

For my international I have 1/2 in VTIAX (index fund) and 1/2 in International Explorer to add a small cap tilt.

 

[Lsbcal]

...

How do most of you cut and slice your international allocation (if you have one) and do you still feel good about it's role in the long term?

I have 60% US and 40% international. But the international is traded (tax free accounts) between US and International. Currently this is all in US ... no international.

Not something I would recommend to others. However, it does help me to feel like I have covered the bases sufficiently. When I started this strategy in 2009 it backtested well. Since then I've somewhat modified it and it has done a lot better then a straight international allocation. Will it do as well in the future? No guarantees in life.

 

[hotwired]

I have been toying and experimenting with tactical asset allocation, specifically we are for each asset class, you are 100% invested if the price of that asset moves above its 200-day exponential moving average, and pull out to cash want a dips below. What you could do is instead of putting the cash into whatever asset class you were going to put it into, let it set in cash and keep an eye out on those moving averages. If they go above plow it in.incidentally, tactical asset allocation tends to work best only with index funds vs. Individual stocks.

 

[flintnational]

International allocation shown below. We are 70/30 stocks/bonds. International makes up 30% of the stock allocation (21% of the total AA). About 90% of this is at Vanguard.

29% US total mkt index^
10% US value index
10% US small cap value index
14% International total mkt index
7% Emerging mkt index
30% Short term bond index*

^includes a handful of legacy individual stocks
*includes a RE note