Author Topic: Lump sums and market timing  (Read 1515 times)

tracyleigh54

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Lump sums and market timing
« on: October 07, 2018, 03:08:26 PM »
Hey friends, I've got a question from a relative noob. I've recently read some books about index investing, discovered MMM, etc. Figured out how terrible financial advisors are.

Anyway, I'm 31 and I've got about $65,000 that I had invested in mutual funds, that I am now in the process of removing. I'm about to re-invest them in index funds and bonds, and then will proceed with contributing and investing monthly.

Now, I know it's not good to time the market, and better to just contribute every month regardless of what's going on. I get that. But is it the same if you have a big lump sum? I'm confused about this. From what I've read in the books about indexing (ex. Millionaire Teacher), you get more for your money if you buy stocks when the market is in recession, because the stocks cost less. Makes sense.

So my question is... since we're at the top of a boom right now, and assuming a recession is coming at some point soonish (http://www.mrmoneymustache.com/2017/06/20/next-recession/) .... is it a bad idea to invest a lump sum right now? I would rather just stick it all in and be done with it, but am I cheating myself out of a lot of potential returns by doing it now and not waiting a little bit?

Although, to be honest, I've already taken the money out of the mutual funds, so it needs to get invested regardless...  I guess perhaps the question is what kind of stock bond allocation it should go into. Normally I would choose something like 80/20 stocks/bonds or 70/30 ... but would it make sense to perhaps put it in at 40/60 stock/bonds for now, and then when the market goes down, sell a bunch of the bonds and stock at that point to get the 70/30 allocation? Would there be benefit to this approach?

What would you do?

Thank you so much for the help!

TheHardenedInvestor

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Lump sums and market timing
« Reply #1 on: October 07, 2018, 03:27:12 PM »
What would I do? Without thinking twice I would submit my buy order for VTSAX or VFIAX or equivalent index funds if you don’t have Vanguard. I would invest 100% of that money and would not mess with any bonds. Why no bonds? You are 31 and you have a long way to go based on your current net worth so you will be investing for a long time. Bonds are not appropriate for your situation at all right now. If you gotta have bonds because for some reason it will make you feel better, then 90/10. Don’t even consider a “balanced fund” 60/40. Best of success to ya.
« Last Edit: October 07, 2018, 03:57:49 PM by TheHardenedInvestor »

dandarc

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Re: Lump sums and market timing
« Reply #2 on: October 07, 2018, 03:42:52 PM »
Quote
So my question is... since we're at the top of a boom right now

How do you know that? Answer: you don't. People have been calling the top since 2013 or so pretty much continuously - that's 5 years of waiting for a dip that hasn't really happened yet.

The problem with trying to buy the dips is you can't know in advance when they are going to happen. Pick your asset allocation and invest accordingly as soon as any money is available for investment - lump sum or not.

If it helps, if you keep investing a decent portion of your income, $65K won't seem like an amount to worry much about in a few years - even if this is the worst time to buy in the next several years - which to reiterate, nobody knows if it is or is not - it won't be that big of a deal for you over the long term.

Whenever you want to time the market, think of Bob. https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

wheezle

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Re: Lump sums and market timing
« Reply #3 on: October 07, 2018, 06:23:57 PM »
Avowed market-timer here!

100% in stocks is the best way to go unless you've got a good system.

jacoavluha

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Re: Lump sums and market timing
« Reply #4 on: October 07, 2018, 06:53:12 PM »
either put it all in now at your desired allocation, or dollar cost average over 6 months or so - whichever will let you sleep better at night

why did you take it all out of the prior investment without a plan of what to do?

Andy R

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Re: Lump sums and market timing
« Reply #5 on: October 07, 2018, 07:18:33 PM »
we're at the top of a boom right now, and assuming a recession is coming at some point soonish

It's cool the way you can predict the future and know we are at the top and it won't continue higher. Can you teach me how to do it?

Although, to be honest, I've already taken the money out of the mutual funds, so it needs to get invested regardless

I like this article by Rick Ferri. Great info in there, and one part is specific to your situation.
https://www.forbes.com/sites/rickferri/2015/09/08/6-things-to-consider-when-investing-a-lump-sum/#363fb06f11d3

Rob_bob

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Re: Lump sums and market timing
« Reply #6 on: October 07, 2018, 07:50:08 PM »
I will be getting a lump sum in the next couple of weeks.  I already have my allocations figured out and will invest as soon as it's in my account.  In fact I have jumped the gun on a few new positions by using my margin account.  Bond prices will go down as rates rise and the yields are low so I will add to my CD's so at least the principle doesn't erode with rate increases.

RWD

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Re: Lump sums and market timing
« Reply #7 on: October 07, 2018, 07:56:33 PM »
It's the same with a lump sum as with any smaller amount of money. Invest it immediately according to your investment policy statement.

Here is a relevant post from JL Collins' stock series:
https://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/

tracyleigh54

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Re: Lump sums and market timing
« Reply #8 on: October 07, 2018, 08:20:18 PM »
Thanks for your replies everyone. Investing it all right away in my desired allocation was what I thought the answer would be and what I had been intending to do, but thought I should just double check.

I'll be doing 80/20 stocks and bonds, because I'm in Canada, and using Vanguard's All in One fund was the cheapest and easiest solution I found (even removing the need to rebalance). Their aggressive portfolio is 80/20, so that's what it'll be. --> https://www.vanguardcanada.ca/individual/etfs/about-our-asset-allocation-etfs.htm?lang=en

As for the flack about the "Top of the market" comment... yes, I phrased that wrong. What I intended when I wrote it was just that... it's just currently up... and not, well, recessed.

Andy R

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Re: Lump sums and market timing
« Reply #9 on: October 07, 2018, 11:18:14 PM »
As for the flack about the "Top of the market" comment... yes, I phrased that wrong. What I intended when I wrote it was just that... it's just currently up... and not, well, recessed.

It was up in 2014-15 and there are a couple of threads on bogleheads forum of people who took out all their money back then. They have now missed out on 40% more gains. One had something like 600k of life savings and missed out on 240k and is in deep regret and wondering how to get back in the market while continuing to be worried about getting in and facing a drop or staying out and missing more gains.
I don't see how now is different to then, in that, as Jack Bogle said "nobody knows nuthin".

twig21

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Re: Lump sums and market timing
« Reply #10 on: October 08, 2018, 08:47:58 PM »
Doesn't sound like you are investing a lump some now.  Sounds like you are reallocating to different investments.

You are moving $65K that's been invested into different investments and questioning whether or not you should be invested at all right now. 

Ask yourself this.  If stocks fall 20, 30, 50% and people are losing their jobs and houses are you then going to say now is a good time to reinvest or are you going to be fearful and want to keep your cash?  If you move to all cash now what is your metric to know when to reinvest it?

Blueberries

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Re: Lump sums and market timing
« Reply #11 on: October 09, 2018, 01:11:43 PM »
Since you will be contributing monthly, I would put the entire lump sum in the market at once.  That said, if it makes you feel better to average, do it, but know you might average up or you might average down.

talltexan

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Re: Lump sums and market timing
« Reply #12 on: October 11, 2018, 06:31:52 AM »
Just following up: OP, it's possible you acted on your resolve and put it all in right before a rough day. I always feel like an idiot when I invest in stuff, and it drops immediately, so I just want you to know: all of us here eat our own cooking. We do the thing we advise others to do.

Which means we are suffering right along with you in this market decline.

TaronM

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Re: Lump sums and market timing
« Reply #13 on: October 11, 2018, 09:35:47 PM »
If you haven't already done so, my advice is to invest the whole lump sum RIGHT NOW! Great time to do it. If you decided to start averaging in, I would say forget all that and dump in the rest now.

If you already dumped it all in and now are seeing this big loss right away, I know you are cursing your bad luck. DON'T PANIC. Remember, until you actually SELL your investments you haven't actually lost any money, so just refuse to sell them until they are worth more than you bought them for and this dip won't really matter. Yes you lost out on a 5% discount or whatever but that's not really going to make a big difference in the long run.

Like dandarc pointed out, whenever you have bad luck like this, recall the story of Bob, the world's worst market timer.

I know the feeling of investing a large sum all at once and then having it drop drastically within days. I of course feel a lot of regret at the time that I didn't wait a few days and get a discount.

But of all the investing decisions I've ever made, in the long run, you know what I always regret the most? Not investing as much as I could as soon as I could. Even in the cases where I went in right before a big dip, I wish I'd been braver and put in more, especially in the ones from many years ago, because I still would be better off now even with the big dip or with making poor choices of funds (i.e. before I knew about index fund investing and just went with target retirement date active funds).

The best time to invest in the stock market is always "right now". Investing as much as you can as soon as you can and holding on to it as long as possible is statistically superior to all other strategies. Look at this dip as a litmus test to your investing fortitude and likelihood to panic in the future when you think about your allocations going forward (though I personally suggest 80/20 stock/bond).
« Last Edit: October 11, 2018, 10:38:57 PM by TaronM »

ILikeDividends

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Re: Lump sums and market timing
« Reply #14 on: October 11, 2018, 10:04:09 PM »
At age 31, there is absolutely no reason to feel a sense of loss due to the latest spike in volatility.  Why?  Because you haven't actually lost anything.

Break volatility risk into two separate pieces:

1) What's the probability of a volatility event happening soon?  Answer: pretty high.
2) What's the impact of a volatility event changing anything at all in your 31 year old lifestyle?  Answer: zero impact.  That potential impact only very gradually increases as you age.

Volatility risk only becomes a relevant concern that you have to mitigate when the proximity to retirement (or some other need to spend that money) is near.  Until then, volatility is just noise to you.  You pay attention to it at your own peril.

That is why the sooner you put your whole stash to work for you, the better off you are likely to fare.  What happens tomorrow doesn't matter to you.  It's what happens in 30 years from now that matters.
« Last Edit: October 12, 2018, 12:49:22 AM by ILikeDividends »

tracyleigh54

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Re: Lump sums and market timing
« Reply #15 on: October 12, 2018, 06:12:58 PM »
My money is actually in the ether at the moment, somewhere in the middle of being transferred from the financial advisor to the new brokerage (but I have no idea where in the process it is). Ideally, the advisor sold the mutual funds before this "crash", and now I can invest them at the low. But that might not be the case... he might not have sold them yet and so maybe I'll be sold at a loss now.. and who knows what the market could do in a couple weeks. It could go back up again and I'll have to buy in high.

If there's one thing I learned from this thread, it's "just don't worry about it".


marty998

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Re: Lump sums and market timing
« Reply #16 on: October 12, 2018, 06:29:04 PM »
My money is actually in the ether at the moment, somewhere in the middle of being transferred from the financial advisor to the new brokerage (but I have no idea where in the process it is). Ideally, the advisor sold the mutual funds before this "crash", and now I can invest them at the low. But that might not be the case... he might not have sold them yet and so maybe I'll be sold at a loss now.. and who knows what the market could do in a couple weeks. It could go back up again and I'll have to buy in high.

If there's one thing I learned from this thread, it's "just don't worry about it".


In a very small way the selling of your investments within the mutual fund may well have contributed to the recent market falls.

Thousands of these decisions added together create the market movements :)

ILikeDividends

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Re: Lump sums and market timing
« Reply #17 on: October 12, 2018, 07:11:39 PM »
My money is actually in the ether at the moment, somewhere in the middle of being transferred from the financial advisor to the new brokerage (but I have no idea where in the process it is). Ideally, the advisor sold the mutual funds before this "crash", and now I can invest them at the low. But that might not be the case... he might not have sold them yet and so maybe I'll be sold at a loss now...
I'm going to go out on a limb and guess your financial advisor is through a Wells Fargo's brokerage service.

When I got the court papers to liquidate my late uncle's brokerage account (held by a Wells Fargo advisor), he coincidentally had planned to start a vacation.  I had to wait a week for him to return before I could liquidate the account.

What kind of play-school financial service/broker shuts its doors when one guy goes on vacation?
« Last Edit: October 12, 2018, 07:16:03 PM by ILikeDividends »

Sailors Grave

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Re: Lump sums and market timing
« Reply #18 on: October 13, 2018, 05:08:03 AM »
I'm new to investing also and have considered the same thing. The difference is I don't even have the 10k to start a vanguard account. I got like 3k now, saving about $500 every two weeks. So still gonna be awhile before I can start. But I guess I'm secretly hoping for the fall to happen between now and when I have enough to get in so I can buy on the cheap.

RWD

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Re: Lump sums and market timing
« Reply #19 on: October 13, 2018, 07:21:55 AM »
I'm new to investing also and have considered the same thing. The difference is I don't even have the 10k to start a vanguard account. I got like 3k now, saving about $500 every two weeks. So still gonna be awhile before I can start. But I guess I'm secretly hoping for the fall to happen between now and when I have enough to get in so I can buy on the cheap.

You don't need $10k to start a Vanguard account. That's just the minimum for Admiral shares. Investor shares typically have a minimum of $3k and ETFs have no minimum.

TaronM

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Re: Lump sums and market timing
« Reply #20 on: October 14, 2018, 11:10:40 AM »
I'm new to investing also and have considered the same thing. The difference is I don't even have the 10k to start a vanguard account. I got like 3k now, saving about $500 every two weeks. So still gonna be awhile before I can start. But I guess I'm secretly hoping for the fall to happen between now and when I have enough to get in so I can buy on the cheap.

I know we all love Vanguard here but you should maybe consider Fidelity. They recently upgraded to removing all minimums to invest for access to all their funds and added new funds with 0% fees like FZROX. Also have pretty good customer service. I'm with them purely because they had my 401k already but I have no complaints. I know Vanguard started the whole thing and I'm a big Bogle fan and all but you could always transfer over later if you feel strongly about it.

The best time to invest is always right now!