What to do with $25k to invest now?

[Mr Mark]

Assuming a core balanced portfolio including emergency cash is already in place, and ignoring IRAs etc, what would the 'Staches suggest as an investment strategy for $25k of tax-paid cash right now?

[foodguy]

Totally depends on what you want to do with it in the future.  The ends truly will explain the means.  Do you want access to this cash immediately if necessary?  Or are you fine with it being tied up for a year, two years, ten years or more?  Do you have credit card debt?  Do you have mortgage debt you want to retire?  Do you want to put a downpayment on a rental?

The options are endless, but the correct option completely depends more on a overall picture and your own comfort/risk level.

[arebelspy]

This is a moot and pointless question once you've figured out your personal targeted Asset Allocation.

Where to invest it?  In whatever you have decided you want to invest in.

Whether that's dividend stocks, Vanguard's Wellesley fund, large or small cap stocks, precious metals, real estate, Browne's Permanent Portfolio, etc. etc.

This statement essentially makes no sense:

Assuming a core balanced portfolio ... what would the 'Staches suggest as an investment strategy for $25k of tax-paid cash right now?

If you have a balanced portfolio and have determined that's your investment strategy, then invest in those type of assets.

It seems to me you need to sit down and figure out what your AA should be.  Then execute.

Unless you're simply saying: I want to time the market, I have a chunk of cash, and I'm willing to take advice from random strangers posting on a message board.  Then by all means, fire away, everyone.  ;)

[Mr Mark]

When you get a 'windfall' payment, despite a long-term AA target, there may be different strategies to phase the allocation of the cash into that portfolio - is that short-term market timing?

Or are you saying one must immediately buy the market, always? That seems simplistic in the extreme.

And I'm willing to listen to advice on a message board! Taking any such advice is an individual decision, as always ;)

[arebelspy]

Or are you saying one must immediately buy the market, always? That seems simplistic in the extreme.

One should always be in line with their asset allocation, yes.

Spuriously changing because of a sudden windfall seems like a good way to make a mistake.

When you get a 'windfall' payment, despite a long-term AA target, there may be different strategies to phase the allocation of the cash into that portfolio - is that short-term market timing?

This is a different question.  You should be investing with regards to your AA, but dollar cost averaging is perfectly fine, in fact often recommended.

The way the question is posed in this thread, it's not "how do I phase in a windfall to my AA."  We'd need much more information for that.

With the way it's phrased you'll get junk answers like "GOLD NEVER GOES DOWN" or "I <<<<333 REAL ESTATE" or "PENNY STOCK XYZ IS AMAZING" .. even if answered intelligently, "I think you should buy real estate because of reasons X, Y, and Z," it won't necessarily be good advice for you. 

Thus my original advice: It seems to me you need to sit down and figure out what your AA should be.  Then execute.

If you'd like some help with that, no problem, I'm sure lots would be willing to chime in.  But to just say that you want to throw a big chunk of cash at some random investment not in line with your long term goals, risk levels, interests, etc. seems... unwise.  :)

[Stubbleman]

Or are you saying one must immediately buy the market, always? That seems simplistic in the extreme.

I would not invest it all in one day.  If you're happy with your current asset allocation then pick a time frame reasonable to you, and invest it periodically over that time into that existing portfolio.  Take into consideration fees, time spent worrying the money not earning interest and anything else pertinent.

If you're a stock picking type, alternatively, you could go on a methodical shopping spree over a similar, reasonable time frame.  Using your stock picking method of choice.  Again, I would not lop it all into one place at one time.

[Mr Mark]

Stubbleman, thx.

I think you're right. 'Moderation in all things' seems MMM.

I agree the original question is ambiguous - it was really a question of short-term market timing/phasing strategies when allocating a cash 'windfall' into a long term balanced AA portfolio. (Even within such a portfolio though, there may be a % you move into and out of cash). Generally I agree with the dangers of attempting to time the market as a core strategy, and the benefits of dollarcost averaging via low-fee index funds.

But... (!) I'm a bit cautious about bonds right now because interest rates are so low. They are 20% of my AA which seems enough [I have mainly a 15-20 yr horizon]. Yet, market timing dogma aside, equities just look like they need a relatively small correction right now!

Did find some interesting analysis on market timing, looking at month averages. Funny how often Late Feb/early March sees a correction. Just look back at the S&P over the past few decades.

So will:
- take the opportunity to look at objectives and desired AA, investment strategy. See the investment as a way to rebalance if required, while holding exiting assets;
-  start now with 10% into the dividend and bond heavy core parts of long-term AA;
- feed the rest in over ~3 months at a minimum 5%/max 10% weekly schedule, looking for short-term corrections or medium term trends as buying opportunities;
- effectively go 'long' on  cash & bonds in the interim.

[Ben]

Seems like a fairly well-thought-out plan. Since the overall slope of investment return is positive, distributing the windfall into your pre-determined asset allocations sooner rather than later makes sense. But I am less market-timing than most on this board (although I'm currently reading Irrational Exuberance, so that may change). It can certainly be uncomfortable to invest $25k in immediately and then watch it suffer a quick drop.

I would be hesitant to put too much importance on the January effect (and subsequent correction), as by the time any cyclical pattern becomes clear, efficient markets will typically render it useless (e.g. if there is a consistent bump and then drop in January, smart investors will buy earlier and then sell earlier, etc. until it is negated). See http://en.wikipedia.org/wiki/Nash_Equilibrium

Ben

P.S. I agree that long-term bonds are probably not the strongest investment right now... but if you are in short-to-intermediate term bonds, your risk is lower...

[Mr Mark]

For the bonds I'd avoid long term too. I'm thinking a mix of high yield corps & tax-exempt intermediate munis.

And I don't think markets are always so perfectly efficient...  Look at gold!

cheers,

[smedleyb]

Assuming a core balanced portfolio including emergency cash is already in place, and ignoring IRAs etc, what would the 'Staches suggest as an investment strategy for $25k of tax-paid cash right now?

Detroit, eh?  Was just there for a wedding. 

Stocks seem overpriced -- even if they're going higher.  Bonds (treasuries and corporates) are a disaster waiting to happen.  But alas, timing is everything, and my timing has been hit or miss lately, so feel free to ignore me.

Have you looked into distressed properties?  But a cheap property, fix it up (sweat equity) as live in it, flip it for a tax-free capital gain?   

Just tossing around ideas...

[Mr Mark]

Thanks to the advice above, I reanalysed my desired strategy [long term growth, ~15 yrs+] & risk profile, & decided on the following Asset Allocation target for my mutual fund stock/bond portfolio (note, it's only ~10% of the total 'stash right now):

50% "Core" Balanced Mutual Funds [~20% Bonds, 70% Large US, 10% International Blue Chip]
10% Small Cap, Growth & Value
10% Mid Cap, Growth & Value
10% Dividend focus
10% International Equities (overweight in Emerging)
5% Broad Bond Index
5% Commodities or REITs (or other speculation)

It's pretty simple and easy to implement. I'll use the cash to feed into this AA over the next month or so, hoping for a 3-5% broad-based market correction in the meantime!

For those interested, here's my Fund picks for what they're worth - all Vanguard. You can use VFINX (S&P500 index) as a good reference point.

Core:
VWINX
VWELX
VGSTX
VEXMX

Small Cap
VISVX
VISGX

Mid Cap
VMGIX
VMGRX

Dividend focus
VEIPX

International
VWIGX
VEIEX

Bond Index
VBMFX

Commodities or REITs
VGPMX
VGSIX

[arebelspy]

Sounds like a solid plan!  Well done!

[Dave]

And I don't think markets are always so perfectly efficient...  Look at gold!

I'm not sure quite what you mean by this (presumably that the price of gold is "too high"?), but I'm not sure that's evidence of a market inefficiency.

The price of anything is complex and relates equally to the alternatives as it does to anything inherent about the investment itself - gold being a prime example.

You could say that, as we enter a period of prosperity after the recent crisis, the price of gold is bound to fall as people sell out to get into equities and bonds. On the other hand, you could say that when the Eurozone collapses, equities and bonds will both be annihilated, at least in the short term - money will flee to gold, driving the price through the roof.

Gold either seems cheap or expensive depending on what you expect to happen - so the price of gold reflects the balance of judgement of millions of people, and the efficient market hypothesis simply implies that the price is a fair reflection of that consensus.

In hindsight, it will be obvious to everyone that stocks / bonds / gold was going to plunge. That's the problem :)

[Mr Mark]

Dave,

Yes, I do feel Gold has been overbought and over speculated with. Silver even worse. But, hey, some people seem to like it, no-one can predict the future (including me), and so I guess that explains the up to ~2.5% of the stocks/bonds total in precious metals.

For 'hard value' / crisis type investing, I'd prefer buying fertile land in the USA over gold I guess!