Best way to move large amount of cash into funds?

[IBWino]

Hi,
I'm a new member, but long time lurker. My wife and I are both 45 and diligently working towards trying to FIRE by 50 (no later than 55). I've just finished reading Bernstein's Four Pillars and will be starting Bob Clyatt's book this weekend.

I've been maxing out my 401k contributions for the past 10-12 years, and my income is too high for us to qualify for a Roth. Over the past couple of years, we've accumulated a considerable amount of cash in taxable accounts. We would like to invest about $100K-$150K of this into a blend of Vanguard tax managed funds. I like the idea of using the "value averaging" approach described in Bernstein's book, but I'm not sure how often and over what total time period we should move this money into the Vanguard account. Bernstein suggests periodic investments over 3 years, but this seems like a long time to us, especially considering that the money barely keeps up with inflation while sitting in our CD ladder. Any suggestions?

 

[d]

depending on what investments you hold and have available in your 401k, you could move the after-tax $ in one fell swoop, simultaneously moving an equivalent amount in the 401k to cash-equivalents, ST bond etc.  That would maintain your current allocation, allowing for increased tax efficiency.

If moving the $ over time, I'd do so over an 18-24 month period. 

 

[LOL!]

There is no best way because there is no way to predict the future. If the future market will be up, then you should just lump sum it all in now.

If the future market will be down, then you should wait for the bottom and then lump it all in then.

If you don't know the future, do what you want, but do it.

Given your info, I would just invest $10K to $20K a month until done. You can invest more when you feel the market has dropped and less if you feel the market is going to drop.

You will know in a couple years what the best way was.

 

[doushioukanaa]

I agree with LOL!  I once put a big chunk into the market right before 9/11 and it got killed, but I can't kick myself for that.  How could I have known?  If you agree with the philosophy of a certain asset allocation, just put it into that allocation.   Unless you have a good hunch with a good basis that things are heading south (like if the market P/E ratio is at a historic high and dividend yield at a historic low), take the plunge.  Otherwise it takes too long to reach your desired allocation.

We would like to invest about $100K-$150K of this into a blend of Vanguard tax managed funds. 

I know this is a bit of a tangent, but is there any research or logic to the belief that tax managed funds actually produce a tax cost reduction which more than offsets the suboptimal nominal returns that could have been achieved?  I've gotten burned before delaying a sell decision in order to optimize the tax situation, and I vowed to never to do it again.  I'm skeptical of these. 

 

[IBWino]

I guess I shouldn't have used the term "Best way", especially after having just finished Bernstein's book.

I was really just looking for a bit of advice regarding the investment process (e.g. open the account with $10K and then add add $2K per week, or $10K per month, or $20K per quarter, etc.). Adding $5K to $10K per month for 18-24 mos. seems reasonable.

Thanks for the replies.

 

[bosco]

I like to use synchrovest in these situations. It's a variation of dollar-cost-averaging, but works better in most cases. see

http://www.geocities.com/lostcowboy5/Spreadsheets/synchrovest.txt

for a description and


http://www.geocities.com/lostcowboy5/Spreadsheets/

for a sample spreadsheet

the explanation is not the clearest, but you can deduce the algorithm from it.

 

[IBWino]

Thanks Bosco,
I'll take some time weekend and see if I can digest the synchrovest approach.

 

[lostcowboy]

synchrovest

Hello, I would be interested in what method you finally used. If you used Synchrovest do you think the method good or bad?

In case anyone wanted to know, Bosco was linking to my explanation of Synchrovest. Those links are no good anymore, however I do have a small forum on investorshub where I try to talk about the diffrent types of systematic investing. Systematic Investing Group (SIG) Message Board