Yes I'm thinking timing - but only for getting in.

[modhatter]

I am in the process of opening an account in Vanguard. I have many CD's coming due in the next two months, and I want to put some of this money in some Vanguard funds. I am retired, but need to grow money for my disabled son. I have about $300,000 in individual stocks that I will be moving over, which gives me some added cash flow in dividends, and then adding about another $300,000 from CD's for purchasing Vanguard funds. My problem is my timing isn't so good, as you all know we are at the top of the market for the past 11 yrs. Don't want to buy in at the top, so I am struggling with a strategy. I don't have any other income except this, and about $500,000 in bonds, and will still be holding out about another $300,000 in CD's, along with my social security.
How would you savvy investors go about doing this. I am determining an AA, and thought about buying in at the min. of each fund ($3,000 min) proportionately, then set up a buy for additional funds at drops of say 5%. Or would you wait, and try and set up your initial buys at the next drop. Or would you exclude certain funds at this time, example REITs and or European. Or perhaps you would sit back and wait for the next substantial downturn? How would you get in now, with only a lump sum?

 

[Midpack]

I am in the process of opening an account in Vanguard. I have many CD's coming due in the next two months, and I want to put some of this money in some Vanguard funds. I am retired, but need to grow money for my disabled son. I have about $300,000 in individual stocks that I will be moving over, which gives me some added cash flow in dividends, and then adding about another $300,000 from CD's for purchasing Vanguard funds. My problem is my timing isn't so good, as you all know we are at the top of the market for the past 11 yrs. Don't want to buy in at the top, so I am struggling with a strategy. I don't have any other income except this, and about $500,000 in bonds, and will still be holding out about another $300,000 in CD's, along with my social security.
How would you savvy investors go about doing this. I am determining an AA, and thought about buying in at the min. of each fund ($3,000 min) proportionately, then set up a buy for additional funds at drops of say 5%. Or would you wait, and try and set up your initial buys at the next drop. Or would you exclude certain funds at this time, example REITs and or European. Or perhaps you would sit back and wait for the next substantial downturn? How would you get in now, with only a lump sum?

Dow is "only" at a 4 year high, though I see NASDAQ is indeed at an 11 year high - how about that. I'm not a market timer, so I would just buy in - no way to know where it will go from here, and I'm in for the long haul. In fact I just bought in all in one shot with about 1/3 of my assets from a 401k & lump sum rollover 7 months back. But if you're more comfortable DCAing in, nothing wrong with that either. Others may have strategies to call tops & bottoms that you're comfortable with, just not for me - I have watched firsthand way too many people miss the big run ups by missing bottoms (or even selling at the bottom discouraged). Best of luck...

 

[easysurfer]

I am in the process of opening an account in Vanguard. I have many CD's coming due in the next two months, and I want to put some of this money in some Vanguard funds. I am retired, but need to grow money for my disabled son. I have about $300,000 in individual stocks that I will be moving over, which gives me some added cash flow in dividends, and then adding about another $300,000 from CD's for purchasing Vanguard funds. My problem is my timing isn't so good, as you all know we are at the top of the market for the past 11 yrs. Don't want to buy in at the top, so I am struggling with a strategy. I don't have any other income except this, and about $500,000 in bonds, and will still be holding out about another $300,000 in CD's, along with my social security.
How would you savvy investors go about doing this. I am determining an AA, and thought about buying in at the min. of each fund ($3,000 min) proportionately, then set up a buy for additional funds at drops of say 5%. Or would you wait, and try and set up your initial buys at the next drop. Or would you exclude certain funds at this time, example REITs and or European. Or perhaps you would sit back and wait for the next substantial downturn? How would you get in now, with only a lump sum?

I would DCA the amounts. Seems the simplest thing to do and keep emotions out of process. For example, open up the accounts funds you need at the $3,000 min. Then what's left over, you can put that into a fund (money market?) to dollar cost out of each month into the funds you are investing in. With Vanguard, you can set up auto investments from a fund into other funds, depleting the source fund at the same interval and same amount (in otherwords, DCA'ing out of the fund).

Just decide on when you want to be asset allocated (for example, by end of year? two years from now? three years?) and set up your auto depleting accordingly.

 

[RetireBy90]

I,m all in on my AA, I've been about 70-30 stocks-bonds for a while so have not had to face this situation. However, I have a bud that is in similar situation, and nought in about 20% from bank acct and recently. Then his plan is to add another 20-25% every time there is a pull back of 10%. Just one option to think about.

Me personally I would DCA in say 25% every couple of months cause the market is underpriced in my opinion. Howevwe, my bud's plan makes some sense also.

 

[Animorph]

Foreign equities are not at recent highs, so that's somewhat of an opportunity. I still think there will be a major downturn when Greece and the rest finally hit the fan for real. So I'd set up something like a one or two year DCA and then accelerate the buys when the market hits 5% down steps. That will get you in when the market is lower, but ensure that everything gets in even if the market doesn't go down. Watch the proper index for the equity type you want to buy, such as a domestic, foreign, or EM index. There is no perfect strategy, so forgive yourself ahead of time for not hitting market lows exactly or making buys while the market continues dropping!

 

[foxfirev5]

I am in the process of opening an account in Vanguard. I have many CD's coming due in the next two months, and I want to put some of this money in some Vanguard funds. I am retired, but need to grow money for my disabled son. I have about $300,000 in individual stocks that I will be moving over, which gives me some added cash flow in dividends, and then adding about another $300,000 from CD's for purchasing Vanguard funds. My problem is my timing isn't so good, as you all know we are at the top of the market for the past 11 yrs. Don't want to buy in at the top, so I am struggling with a strategy. I don't have any other income except this, and about $500,000 in bonds, and will still be holding out about another $300,000 in CD's, along with my social security.
How would you savvy investors go about doing this. I am determining an AA, and thought about buying in at the min. of each fund ($3,000 min) proportionately, then set up a buy for additional funds at drops of say 5%. Or would you wait, and try and set up your initial buys at the next drop. Or would you exclude certain funds at this time, example REITs and or European. Or perhaps you would sit back and wait for the next substantial downturn? How would you get in now, with only a lump sum?

It looks to me like your current AA Stock/bond/cash is 21/36/43. The question I have is regarding your risk tolerance. It appears that you have done very well for yourself with a relatively small allocation to stocks. My personal AA is 45/40/15. I'm not yet retired but plan to hold pretty much the same AA for at least the next 10 years with a 35 year horizon. You have to arrive at your own allocation. Ask yourself -why didn't I do this last August when stocks tanked? What were my feelings about stocks in March 2009?

Personally I am DCA into my equity funds on a monthly basis since I'm about .7% under my 45% allocation. I've been taking this approach for over 30 years. Trying to buy more shares when the price is lower. In all honesty I must admitt that I chickened out in March of 2009. I didn't sell anything but also didn't buy low to rebalance my AA. My overall investment style is that of a plodder.

Just my 2 cents -but I believe you need to go with what makes you comfortable. Maybe set your new AA and gradually shift funds on a fixed schedule over the next year or so.

 

[REattempt]

This was an issue for me too. Here is the best advice/common sense/data backed I could find: Evanson Asset Management - Portfolio Design


"We know we can value equity markets based on fundamentals, but we can't time them. So, what's an investor, particularly one with a bearish view on equities, to do? One study found that dollar-cost averaging (DCA) over a 6 month period decreased returns about 1.11% on average for all 6 month periods from 1953-1996, outperforming a lump sum strategy in the majority of cases where markets declined, but came out 5% or better than a lump sum strategy in a only a minority of cases. DCA over a 12 month period worked better, costing 2.50% in returns but beat lump-summing in 100 of 114 instances, and beat it by 5% over half the time. DCA for 18 and 36 month periods cost more and added little value. These calculations, however, don't include what appears to be an equity bubble period from 1996-2002, where staying out or getting into equity markets had far larger effects on returns." Steven Evanson

Put a 12 Month DCA plan together. (6 x 2 months, 12 x 1 month whatever) Follow it. Forget about it.

 

[pb4uski]

If I were you I would value average (not dollar cost average) the amount you want to transfer from fixed income to equities over a period of time. Value averaging varies the amount you buy each period depending on the market performance so it results in buying more when the market is relatively low and buying less when the market is relatively high.

 

[Helen]

If I were you I would value average (not dollar cost average) the amount you want to transfer from fixed income to equities over a period of time. Value averaging varies the amount you buy each period depending on the market performance so it results in buying more when the market is relatively low and buying less when the market is relatively high.

This sounds like an interesting approach and one I had not thought of. Thank you for posting it.

 

[modhatter]

If I were you I would value average (not dollar cost average) the amount you want to transfer from fixed income to equities over a period of time. Value averaging varies the amount you buy each period depending on the market performance so it results in buying more when the market is relatively low and buying less when the market is relatively high.

By this, are you saying, that you buy funds (as an example) emerging markets in greater percentage to your eventual AA while they are below index, and wait for others to become unfavored before buying in, or just put min amounts in on these and start dca when they drop below index? If not. Could you please explain what you mean by "Value Average"? Does it just mean buy the greatest percentage on funds that have lower indexes to those that have high indexes?

Thank you Reattempt for that study. And an answer to anther's question. I did buy in some in 2009. As I got in only one month before the crash and saw my $500,000 in bond allocation disappear to $250,000 (with a paid advisory) due to 4 bankruptcies, and my small stock (selected by me), position plummet, but no where near as bad.

But I stayed in and bought some more stocks in 2009 while they were in decline, which helped recoup a lot of loss. It was nerve racking at the time, but I'm glad I did. Only wish I had the nerve to go all the way. But the fear of a total collapse was intense, so I was just chicken I guess. Still not whole on the bond end, but close.

I really appreciate your inputs and ideas.

 

[Lsbcal]

You might take a look at the chart I just posted which compares SP500 recovery paths, here: http://www.early-retirement.org/forums/f28/so-how-are-we-doing-from-march-2009-low-59908.html

Most of the time it was best to just put the equity money to work right away. You could always consider putting it into something like Wellington where the management tries to avoid overvalued situations -- if that sort of strategy appeals to you.

Of course, no one knows the future path the markets will take. But the 1930's and 1980's recoveries give me hope that there may be plenty of upside in equities -- at least US ones.

 

[ripper1]

I am in the process of opening an account in Vanguard. I have many CD's coming due in the next two months, and I want to put some of this money in some Vanguard funds. I am retired, but need to grow money for my disabled son. I have about $300,000 in individual stocks that I will be moving over, which gives me some added cash flow in dividends, and then adding about another $300,000 from CD's for purchasing Vanguard funds. My problem is my timing isn't so good, as you all know we are at the top of the market for the past 11 yrs. Don't want to buy in at the top, so I am struggling with a strategy. I don't have any other income except this, and about $500,000 in bonds, and will still be holding out about another $300,000 in CD's, along with my social security.
How would you savvy investors go about doing this. I am determining an AA, and thought about buying in at the min. of each fund ($3,000 min) proportionately, then set up a buy for additional funds at drops of say 5%. Or would you wait, and try and set up your initial buys at the next drop. Or would you exclude certain funds at this time, example REITs and or European. Or perhaps you would sit back and wait for the next substantial downturn? How would you get in now, with only a lump sum?

All in at your appropriate AA. It is about time in not timing.

 

[pb4uski]

Value cost averaging is simple, but easiest to explain by example. Let's say I have $120k that I want to invest over the next 12 months.

DCA would be a flat investing of $10k/month irrespective of how the market had done, say on the first of each month.

VCA would invest 10k the first month. The investment at the beginning of the second month would be $20k (2 months * 10k a month) less the balance in the investment account. So if in the first month the market did well so the 10k grew to 10.5, then the second month investment would only be 9.5k. Conversely, if the market declined so the 10k was 9.5 then the investment in the second month would be 10.5 (to bring the balance up to 20). So on and so forth until the total 100k is invested.

So you invest more when the market is relatively low and invest less when the market is relatively high.

I used this approach over many years to invest of my kid's college education and was happy with the result.

 

[Spanky]

So you invest more when the market is relatively low and invest less when the market is relatively high.

Interesting approach. The number of months disbursing the $120K will be dependent on market condition.

 

[utrecht]

I,m all in on my AA, I've been about 70-30 stocks-bonds for a while so have not had to face this situation. However, I have a bud that is in similar situation, and nought in about 20% from bank acct and recently. Then his plan is to add another 20-25% every time there is a pull back of 10%. Just one option to think about.

Me personally I would DCA in say 25% every couple of months cause the market is underpriced in my opinion. Howevwe, my bud's plan makes some sense also.

And what if the market doesn't have a 10% pullback for 2 years and during that time the market increases by 30% or more?

If you think the market is going up long term, dump your money in and stop the over analyzing.

 

[Spanky]

And what if the market doesn't have a 10% pullback for 2 years and during that time the market increases by 30% or more?

If you think the market is going up long term, dump your money in and stop the over analyzing.

Lump-sum is the best approach in a rising market. Value-averaging is more appropriate in a fluctuating or declining market. Since no one really knows where the market is heading, value-averaging seems to be a reasonable approach.

 

[utrecht]

Value averaging doesn't seem unreasonable but since the market's long term bias is always up, I always invest lump sums in one fell swoop.

If you have $100,000 invested and inherit $50,000, your desired AA doesn't change all of the sudden. If you want to be 75/25 (stocks / bonds) and that's where you are before the inheritance, you are now at 50/17/33 and are WAYYYY out of whack. Why not get back to your desired AA and invest the money immediately?

 

[ripper1]

Value averaging doesn't seem unreasonable but since the market's long term bias is always up, I always invest lump sums in one fell swoop.

If you have $100,000 invested and inherit $50,000, your desired AA doesn't change all of the sudden. If you want to be 75/25 (stocks / bonds) and that's where you are before the inheritance, you are now at 50/17/33 and are WAYYYY out of whack. Why not get back to your desired AA and invest the money immediately?

+1