Author Topic: Lump sum investing?  (Read 4218 times)

Baylor3217

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Lump sum investing?
« on: June 23, 2013, 10:37:50 AM »
I'm mid-30s with approximately 50% of my net worth out of the stock market.

How should I alleviate this given the market is near all time highs?

AnonymousCoward

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Re: Lump sum investing?
« Reply #1 on: June 23, 2013, 11:33:45 AM »
This section from the Bogleheads wiki covers the situation well, Dollar cost averaging versus lump sum

In particular,
Quote
For a completely rational investor, lump sum investing will always produce a higher expected return...

and,
Quote
Some investors have the goal, not of maximizing their expected returns, but of minimizing their potential regret. For those investors, dollar cost averaging is superior...

matchewed

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Re: Lump sum investing?
« Reply #2 on: June 23, 2013, 02:18:37 PM »
What do you mean by alleviate this?

Look you're in your mid-30's. Your investment timeline is 50-60 years. The market is no where near a high for that time frame. In fact I'd be willing to bet my net worth on it being a low right now for that time frame. ;)

Mr Mark

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Re: Lump sum investing?
« Reply #3 on: June 23, 2013, 05:14:37 PM »
What do you mean by alleviate this?

Look you're in your mid-30's. Your investment timeline is 50-60 years. The market is no where near a high for that time frame. In fact I'd be willing to bet my net worth on it being a low right now for that time frame. ;)

+1

A lot of readers i feel are seeking some magic financial short cut.

There isn't a reliable one.

You can gamble, preferably at a nearby casino. Or buy individual shares, or gold, or whatever, in the hope of beating the market.

The really amazingthing is that if you focus on savings rate, and just follow basic MMM investing advice, you can make it to financial independence. It's savings rate and frugality that drive FI, not investment nor other subtleties.

Sorry. It's not magic  afterall.



arebelspy

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Re: Lump sum investing?
« Reply #4 on: June 23, 2013, 05:20:19 PM »
If you care about math over psychology, lump sum.

DCA or Value average if the market dropping the day or week after you invest would bother you a lot.

From the Bogleheads wiki linked above:
Quote
According to an investopedia article, studies indicate that lump sum investing has produced higher returns 66% of the time.

For me, if it dropped, I'd be fine, knowing I did the mathematically optimal thing at the time. (And if it rose, naturally that would have been borne out.)

Do what works for you based on your personality, but I'm all about math > psychology for Mustachians.
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arebelspy

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Re: Lump sum investing?
« Reply #5 on: June 23, 2013, 05:21:48 PM »
The really amazingthing is that if you focus on savings rate, and just follow basic MMM investing advice, you can make it to financial independence. It's savings rate and frugality that drive FI, not investment nor other subtleties.

Absolutely.  Nailed it!

In the end, your tiny investment "tweaks" along the way won't matter much at all (as long as, by the "end," when you hit FI, you have very low cost index funds going forward - YMMV) compared to your savings rate.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Villanelle

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Re: Lump sum investing?
« Reply #6 on: June 25, 2013, 03:53:36 AM »
Lump Sum.  As other's have said, it makes the most sense if you remove emotion from the picture.

If you can't stomach that entirely, I'd do a hybrid.  Put in a large lump sum now, then  a few more large investments in the coming months.  For example, put in 40% now, and then twice a month for the next 6 months, invest an additional 5%.  You can structure it any way you want, but if that makes you more comfortable than putting it all in right now, it's not an awful decision because you are still getting much of the money working for you rather quickly, and you aren't spreading it out over such a long period that you are going to lose all that much of the growth and compounding.