Sitting on too much cash ... while waiting to DCA on market dips ...

[stephenson]

When I left my last job in Jan 1, I took a portion of my pension as a lump sum and rolled it over to an IRA with Fidelity. It is a big chunk.

My intent is to dollar cost average on market dips ...I have only had one good opportunity to do so (mid May 17).

I daily look at all the cash sitting there ...

What would you do with the cash while waiting to dollar cost average on dips?

 

[audreyh1]

Gosh, mid May was barely a blip.

It's better to come up with a timeline to average in than to try it by guessing at market dips.

 

[exnavynuke]

Gosh, mid May was barely a blip.

It's better to come up with a timeline to average in than to try it by guessing at market dips.

+1

Just think of all the people who were waiting for a big enough dip from 2009-XXXX year that are still in cash right now because they were scared of the markets.

Get in early, and get in often is my preferential "timing" of the market.

 

[cathy63]

With dollar cost averaging you invest the same dollar amount regardless of the market. If you are waiting for market dips, then by definition you are not doing dollar cost averaging.

However, if you want to do market timing, here's an article I came across recently that may help. It gives 11 recommendations on what you can do with a pile of cash now. https://www.goodfinancialcents.com/best-short-term-investments-right-now-for-your-money/https://www.goodfinancialcents.com/best-short-term-investments-right-now-for-your-money/

 

[stephenson]

Maybe I posed the question poorly ...

My issue is the amount of cash sitting there - I will not be dumping it on a schedule to equities ... I haven't even made up my mind what the AA will be, yet ... still in flux on bigger decisions.

I DO want to do something with this big chunk vice just sitting there at zero ... regardless of HOW I eventually allocate, it needs to be doing something - and, I want it pretty liquid and safe during that period of time.

Does this help with where I am trying to go with the situation? (think several hundred K ...)

I have portions at Fidelity and portions at Vanguard - was thinking FAGIX for Fidelity and VFSUX for Vanguard ... short term, liquid, not something I would have to watch if I was off line for a couple of weeks ...

 

[Fedup]

I put in short term bond recently when it dipped. When it went up, I sold some for a profit. Then when it dipped, I bought some back.

 

[Blue Collar Guy]

can you do a follow up post in 6 months, next Jan 1st. Im curious how your market timing results compare to monthly dollar cost averaging over a 1 and 2 year period. I follow the guide that new previously uninvested money, should be put in at 25 % lump sum and them 2 year dollar cost average.

 

[kcowan]

I think you need to decide your target AA before we can give you relevant advice.

 

[Chuckanut]

Dollar cost average on market dips

Sounds like timing the market to me.

If the current market highs are making you nervous (as they do me) I would just DCA over a longer time period, as much as three years. And if we have a significant correction (over 10% and preferably 20+%) then toss in a few more months.

That's about as close to market timing as I get. I've been to wrong for to long when it comes to timing the market.

 

[stephenson]

OK - OK

Guess I'm gonna have to be non-purist this time.

I'm going to look for 10 down periods and roll 10% or so each time into equities ...

I get it that I need to have my AA all decided ... but, I don't ...

I'm working on it ....

 

[calmloki]

"I DO want to do something with this big chunk vice just sitting there at zero ... regardless of HOW I eventually allocate, it needs to be doing something - and, I want it pretty liquid and safe during that period of time."

Bunch of accounts that will pay you ~1% while you wait. Discover for instance. Something to be said for being sure the amount you start with is available in full when you want it.

 

[Fedup]

Just nibbling a bit when it's down. No fee for Vanguard ETF if you have Vanguard.

 

[stephenson]

I like that ... just nibbling on equities when it's down a bit ...

I have accounts at both Vanguard and Fidelity ...

Still looking for short term money recommendations ... where does everyone keep funds they are going to shift to equities, or even long bonds, but haven't, yet?

 

[CaliKid]

OK - OK

Guess I'm gonna have to be non-purist this time.

I'm going to look for 10 down periods and roll 10% or so each time into equities ...

I get it that I need to have my AA all decided ... but, I don't ...

I'm working on it ....

How do you know when it's a "down period?" It seems like only history will tell. DCA is set it and forget it! Good luck whatever you do.

 

[Fedup]

I like that ... just nibbling on equities when it's down a bit ...

I have accounts at both Vanguard and Fidelity ...

Still looking for short term money recommendations ... where does everyone keep funds they are going to shift to equities, or even long bonds, but haven't, yet?

I have VCSH ETF. There is a short term mutual fund, but I like ETF better.

 

[nwsteve]

Just had a similar conversation with my Fido rep today. He pointed out a Fido "MM" fund currently paying a bit north of .9%--FZDXX. Min size is 100K but you do not have to keep the balance that high. Also better than nada is their regular MM SPRXX-current yield .8%.
If you want to take a bit of risk , look at Vanguards ST Bond etf VCSH--top ranked for ST money. Only costs you 4.95 to get in since it is an ETF

 

[audreyh1]

Maybe I posed the question poorly ...

My issue is the amount of cash sitting there - I will not be dumping it on a schedule to equities ... I haven't even made up my mind what the AA will be, yet ... still in flux on bigger decisions.

I DO want to do something with this big chunk vice just sitting there at zero ... regardless of HOW I eventually allocate, it needs to be doing something - and, I want it pretty liquid and safe during that period of time.

Does this help with where I am trying to go with the situation? (think several hundred K ...)

I have portions at Fidelity and portions at Vanguard - was thinking FAGIX for Fidelity and VFSUX for Vanguard ... short term, liquid, not something I would have to watch if I was off line for a couple of weeks ...

I just got hung up on your timing scheme, sorry, because I don't think you realize how difficult it is going to be to detect and catch dips.

Another way would be to start with a low equity allocation, and then gradually raise it to your target say every quarter. This lets you rebalance after major market moves. If you did it in chunks of 10, it would take you 2.5 years. Some people say that would take too long, but in 1999 (another high flying year) it would not have taken too long but lasted most of the 2000-2002 bear market.

This is in an IRA, and easier to leave it at the broker, so buying high-yield CDs is probably not an option convenience wise. I guess short-term fairly safe bond funds would be your best option.

 

[kaneohe]

Perhaps you could have a competition w/ yourself. With part of the funds, do what others suggesting....dollar-cost average on some time schedule; with the other part, do your own thing waiting for dips. To make it more objective, you may want to define a dip. I see the May dip from 2400+ to 2360- as about
a 2% decline. The risk in not defining a dip is that it is easy to get carried away after waiting forever for a dip and taking the plunge at any decline.
Compare the 2 results for future action. Perhaps you are more clairvoyant
than most.

 

[Scuba]

I think you need to decide your target AA before we can give you relevant advice.

+1
I'm not sure why you want to keep this money in low risk investments now if your eventual intention is to invest it in the market. There have been other threads on this. Research validates that in the long run, return is maximized by investing in the market up front and leaving it there.

 

[samclem]

I just got hung up on your timing scheme, sorry, because I don't think you realize how difficult it is going to be to detect and catch dips.

+1. While working to decide on a final AA that would be appropriate, the OP could put the whole wad into a Target Date fund with something close to the right allocation. Then, when the market "dips," Vanguard (or Fido, etc) will automatically buy more stocks (and sell whatever may have gone up, at least in a relative sense). No need to worry about it, and they'll catch every little "dip" every day. It's hands off and works on autopilot.

 

[Koolau]

I agree with those suggesting it's rarely a good idea to time the market. I know that I'm no good at it. DCA is a very specific method which has advantages and disadvantages - but it's not a "buy on the dips" kind of a process. I have now told you way more than I know on the subject - as usual, so YMMV.

 

[stephenson]

If I could have 10 2% "dips" it would be great ... roll in 10% each time ...I see the biggest issue with this approach as relating to HOW LONG it takes to get sufficient number of littles dips for it to make sense ...if it happened in two months would be great ... BUT, if it takes three years and the market is generally up, then is bad

FZDXX is better than nada ... bit less than 1% a year ... but very short at average maturity of 47 days.

SPRXX lower yield than FZDXX, but also 47 days average maturity.

VCSH around 2% yield, but much longer maturity - 2.5-3 years, I think.

All good options - still looking ... thanks!

 

[samclem]

Give up on the dip thing, it is a losing proposition.
-- If it made sense, you could buy on dips and sell on "ups" and make a lot of money. But in reality, a "dip" is only evident in retrospect. In the moment, it is impossible to tell if a 1% dip will correct back the next day, or if it the first day of a 25% decline.
-- You can prove this yourself for free in about an hour. Set up a spreadsheet with your "amount to be invested". Then, go back to a random date in the past and look at the market closing. Then look at the next day. Dip? Ready to put 10% of your dough into the market? No going back. Now, look at the next day's close. Invest (more) now? Keep doing this until all your money is invested. You probably won't even need to do any comparisons to other methods, by the time you are done you'll have seen the problems with this approach.
-- If this is going into the markets for decades, a tiny advantage of buying 1% cheaper (if you could even achieve that) will hardly be noticeable. Stock prices will probably be going up and down through your "purchase price" several times. Just the missed dividends can easily make the game a loser.

 

[Hyper]

Right now, I'm comfortable regardless of what happens. No way I'd jump in, regardless of method but wish those that are good returns. Guess you have to decide how much of a loss your willing to accept should it go south? And how long your willing to wait til it returns? Twice, I've taken 50% losses over the yrs. Just not willing to do it again as long I feel our futures are comfortable??

 

[marko]

How do you know when it's a "down period?" It seems like only history will tell. DCA is set it and forget it! Good luck whatever you do.

My neighbor (who is smarter than everyone else...just ask her) cashed out her entire portfolio the third week of February 2009.

When she sells again, that should indicate the bottom of the down period. I'll let everyone here know.