Author Topic: $800,000 in cash. What to do?  (Read 4294 times)

Albatross

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$800,000 in cash. What to do?
« on: April 07, 2020, 02:56:25 AM »
So - I did a boo boo and tried to market time for the last two years. DW and I have saved $800,000 in liquid cash and watched the stock market go down, then sort of come back up the last few weeks.

We don't want to totally waste the opportunity to buy stocks at a discount, so want to (and perhaps should have already) bought back into the market.

Mentally, a lump sum $800k investment into various index funds would be difficult. DCA would be easier, but that goes against the Mustachian mantra.

What would you do? I am sick of timing / watching the market.

MustacheAndaHalf

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Re: $800,000 in cash. What to do?
« Reply #1 on: April 07, 2020, 04:23:53 AM »
Morningstar reports U.S. stocks earned -19% year to date.
https://www.morningstar.com/etfs/arcx/vti/performance

My advice is take a chunk of that money and invest it immediately.
Are you more comfortable with $400k, $800k or $200k going into the market tomorrow?

Keep in mind you don't need to do this perfectly.  If you dump all $800k into the market today, you have beaten everyone else by -19%.  That's not a mistake, that's a victory.  Even if markets drop - everyone else is in the same situation.

Something to consider if you're on the fence, with 0% stocks and 100% cash:  every country's government and health care sector is putting all their effort towards getting back to normal.

mrmoonymartian

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Re: $800,000 in cash. What to do?
« Reply #2 on: April 07, 2020, 04:51:24 AM »
Sounds like you're ready to start getting rid of this albatross around your neck. You want to DCA, so DCA. Just make a start already.

talltexan

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Re: $800,000 in cash. What to do?
« Reply #3 on: April 07, 2020, 06:38:06 AM »
Math says you should just 100% jump into the market. Today.

If you're hesitating, it's probably your risk-o-meter telling you that you cannot psychologically handle 100% stocks. Don't be ashamed, most people really cannot.

So go 40%. Today. put the other 60% in bonds. I know they're overvalued, but people were saying that about bonds for years already, and they just kept increasing.

J Boogie

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Re: $800,000 in cash. What to do?
« Reply #4 on: April 07, 2020, 07:43:40 AM »
Start an accelerated DCA program that finalizes in say, 4 months where you put in $50,000 every Monday.

And when the market is down 2-8% on a different day, back up the truck and put in an extra week's worth of contributions that same day - shortening your DCA period by a week. And if the market is down another big chunk the next day, double it. And so on and so forth.

We'll probably have plenty of days like that in the next 4 months.

So that way you have a defined plan, a defined date where you will be 100% invested by if not earlier.

I'm of the opinion that like any bad habit you gotta wean yourself off market timing. You go cold turkey and you could get cold feet. The last thing you want is to put it all in, lose 5% in a day, get scared and take it all out just before it rockets back up.

sehr

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Re: $800,000 in cash. What to do?
« Reply #5 on: April 07, 2020, 08:00:50 AM »
I've set up a bunch of 60 day limit orders of varying amounts downward in an attempt not to miss the bottom with a lump sum I have. That way I don't have to keep an eye on what is going on and I don't have FOMO. The downside is you won't have a definitive date as to when it will be all in and there is the risk it won't get that low, but you will definitely get a large proportion in if you start with today's price.


I know market timing is for losers like me, but I can't shake the feeling it's going to get a lot worse so I'm holding off buying too much now in our regular brokerage, although still maxing 401k. The chances of a v shaped recovery with no vaccine in sight seems slim and our economy is going to keep grinding down and supply chains will collapse and need time to recover.

Albatross

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Re: $800,000 in cash. What to do?
« Reply #6 on: April 07, 2020, 08:53:32 AM »
Start an accelerated DCA program that finalizes in say, 4 months where you put in $50,000 every Monday.

And when the market is down 2-8% on a different day, back up the truck and put in an extra week's worth of contributions that same day - shortening your DCA period by a week. And if the market is down another big chunk the next day, double it. And so on and so forth.

We'll probably have plenty of days like that in the next 4 months.

So that way you have a defined plan, a defined date where you will be 100% invested by if not earlier.

I'm of the opinion that like any bad habit you gotta wean yourself off market timing. You go cold turkey and you could get cold feet. The last thing you want is to put it all in, lose 5% in a day, get scared and take it all out just before it rockets back up.

Thanks I really like this idea - that way we are putting all our money in for reasons I am mentally happy with (i.e. either a lucky price drop or that it's just a scheduled buying date). I suspect I may invest in shorter time frame, like 1 or 2 months but thanks for your idea.

PDXTabs

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Re: $800,000 in cash. What to do?
« Reply #7 on: April 07, 2020, 12:13:15 PM »
What would you do?

DCA into VT over 12 or so months. But you have so much money you could do 52 buys.

MustacheAndaHalf

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Re: $800,000 in cash. What to do?
« Reply #8 on: April 08, 2020, 12:50:36 AM »
Historically markets tend to go up, so a faster DCA plan of 1-2 months makes sense.

Are you planning to buy the dip because of how markets behaved from Mar 9 to Mar 18?  Markets were in pure panic then, with an unknown number of cases shutting down an unknown amount of the U.S. economy.  Since Mar 23 (lowest point so far, -35%) I only see one -4.5% drop at the start of April.

If there weren't COVID-19 outbreaks in Europe and the U.S., would you wait for -5% drops in the market to buy in?

jojoguy

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Re: $800,000 in cash. What to do?
« Reply #9 on: April 08, 2020, 01:51:41 AM »
Wow....

Albatross

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Re: $800,000 in cash. What to do?
« Reply #10 on: April 08, 2020, 01:54:23 AM »
Historically markets tend to go up, so a faster DCA plan of 1-2 months makes sense.

Are you planning to buy the dip because of how markets behaved from Mar 9 to Mar 18?  Markets were in pure panic then, with an unknown number of cases shutting down an unknown amount of the U.S. economy.  Since Mar 23 (lowest point so far, -35%) I only see one -4.5% drop at the start of April.

If there weren't COVID-19 outbreaks in Europe and the U.S., would you wait for -5% drops in the market to buy in?

Actually decided we did not need further 'stress' of setting out a DCA plan, so simply went all in with the $800k today (I'm not based in the US if that was confusing you). Not going to look at it until I rebalance every 3 months. I feel free now and unshackled from trying to guess the market.

Thanks all and I look forward to at least some decent returns in the next 10 to 20 years.

2Birds1Stone

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Re: $800,000 in cash. What to do?
« Reply #11 on: April 08, 2020, 03:44:51 AM »
Congrats on getting it in! You have big balls. Now turn off the financial news and look at your balances in a year or three.

soccerluvof4

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Re: $800,000 in cash. What to do?
« Reply #12 on: April 08, 2020, 07:49:15 AM »
Congrats on getting it in! You have big balls. Now turn off the financial news and look at your balances in a year or three.

+1

You made the right decision and I am sure if the market dips (which it will most likely do) you will doubt yourself but dont. 5,10, 15 years you should be much better off.

Captain Cactus

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Re: $800,000 in cash. What to do?
« Reply #13 on: April 08, 2020, 08:13:42 AM »
What to do, indeed!  If I were you, I would make plans to retire overseas in some cheap, tropical location and live the dream for the rest of your days...and invest so the yield supports that!  But alas, that's just my dream :)

Depending on the rest of your situation, sounds like a combination of lump sum investment and DCA could be an option for you.  Congrats and good luck!

2Birds1Stone

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Re: $800,000 in cash. What to do?
« Reply #14 on: April 08, 2020, 08:18:06 AM »
sounds like a combination of lump sum investment and DCA could be an option for you.  Congrats and good luck!

OP already made their move.

MustacheAndaHalf

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Re: $800,000 in cash. What to do?
« Reply #15 on: April 08, 2020, 08:38:40 AM »
Historically markets tend to go up, so a faster DCA plan of 1-2 months makes sense.

Are you planning to buy the dip because of how markets behaved from Mar 9 to Mar 18?  Markets were in pure panic then, with an unknown number of cases shutting down an unknown amount of the U.S. economy.  Since Mar 23 (lowest point so far, -35%) I only see one -4.5% drop at the start of April.

If there weren't COVID-19 outbreaks in Europe and the U.S., would you wait for -5% drops in the market to buy in?

Actually decided we did not need further 'stress' of setting out a DCA plan, so simply went all in with the $800k today (I'm not based in the US if that was confusing you). Not going to look at it until I rebalance every 3 months. I feel free now and unshackled from trying to guess the market.

Thanks all and I look forward to at least some decent returns in the next 10 to 20 years.
I'm so happy for you!  I think you'll see decent returns in months, though.  I hope you'll come back some time later and mention how it went.

Captain Cactus

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Re: $800,000 in cash. What to do?
« Reply #16 on: April 08, 2020, 09:06:06 AM »
Congrats to OP for the decision! 

sehr

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Re: $800,000 in cash. What to do?
« Reply #17 on: April 08, 2020, 10:30:47 AM »
Congrats!

Albatross

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Re: $800,000 in cash. What to do?
« Reply #18 on: April 08, 2020, 06:58:36 PM »
Thanks everyone! I will need to just keep things simple. Very much appreciate the advice to stay the course.  Feeling a lot more zen about the whole thing and my life now. 

nsmall

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Re: $800,000 in cash. What to do?
« Reply #19 on: April 08, 2020, 10:18:42 PM »
Congratulations.   Way to go.  No more selling, just keep on buying.

Jack0Life

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Re: $800,000 in cash. What to do?
« Reply #20 on: April 08, 2020, 10:26:03 PM »
Historically markets tend to go up, so a faster DCA plan of 1-2 months makes sense.

Are you planning to buy the dip because of how markets behaved from Mar 9 to Mar 18?  Markets were in pure panic then, with an unknown number of cases shutting down an unknown amount of the U.S. economy.  Since Mar 23 (lowest point so far, -35%) I only see one -4.5% drop at the start of April.

If there weren't COVID-19 outbreaks in Europe and the U.S., would you wait for -5% drops in the market to buy in?

Actually decided we did not need further 'stress' of setting out a DCA plan, so simply went all in with the $800k today (I'm not based in the US if that was confusing you). Not going to look at it until I rebalance every 3 months. I feel free now and unshackled from trying to guess the market.

Thanks all and I look forward to at least some decent returns in the next 10 to 20 years.

Congrats !! You're still ~20% from peak high. You got a huge discount.
Dont look back.

ChpBstrd

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Re: $800,000 in cash. What to do?
« Reply #21 on: April 14, 2020, 01:57:39 PM »
Congrats on missing much of the downturn! Now I suggest protecting your position with a costless collar.

https://www.optionsplaybook.com/option-strategies/collar-option/

MustacheAndaHalf

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Re: $800,000 in cash. What to do?
« Reply #22 on: April 15, 2020, 08:20:16 PM »
Congrats on missing much of the downturn! Now I suggest protecting your position with a costless collar.
https://www.investopedia.com/terms/z/zerocostcollar.asp
Not OP, and I don't know or plan to use a "costless collar", but do I understand this correctly?
That move limits your gains in a market down -15.6% YTD.  Market volatility is not guaranteed, and if markets don't move then options expire worthless (or at least cost more than the buyer paid, if in the money).  I think "costless" hides the risk, unless I misunderstood?

ChpBstrd

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Re: $800,000 in cash. What to do?
« Reply #23 on: April 16, 2020, 09:08:02 AM »
Congrats on missing much of the downturn! Now I suggest protecting your position with a costless collar.
https://www.investopedia.com/terms/z/zerocostcollar.asp
Not OP, and I don't know or plan to use a "costless collar", but do I understand this correctly?
That move limits your gains in a market down -15.6% YTD.  Market volatility is not guaranteed, and if markets don't move then options expire worthless (or at least cost more than the buyer paid, if in the money).  I think "costless" hides the risk, unless I misunderstood?

You buy a put to protect your stocks and sell a call to pay for the put.

The end result is your position cannot lose more than X% due to the put and cannot gain more than X% due to the call. As time passes, your long put loses value, which subtracts value from you, but your short call also loses value, which adds value to you.

You could set up a collar with a net credit or a net debit to obtain a different risk/reward profile (e.g. trade cash in hand for lower upside, or pay for more downside protection), but selling a call for about the same price as you buy a put is an attractive choice because it is sustainable and it neutralizes the forces of time decay, volatility, and interest rates that affect other options strategies.

Albatross

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Re: $800,000 in cash. What to do?
« Reply #24 on: April 16, 2020, 08:18:49 PM »
Thanks for the costless collar idea but I'm just going to keep it simple and wait long term.

MustacheAndaHalf

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Re: $800,000 in cash. What to do?
« Reply #25 on: April 17, 2020, 12:37:30 PM »
Congrats on missing much of the downturn! Now I suggest protecting your position with a costless collar.
https://www.investopedia.com/terms/z/zerocostcollar.asp
Not OP, and I don't know or plan to use a "costless collar", but do I understand this correctly?
That move limits your gains in a market down -15.6% YTD.  Market volatility is not guaranteed, and if markets don't move then options expire worthless (or at least cost more than the buyer paid, if in the money).  I think "costless" hides the risk, unless I misunderstood?

You buy a put to protect your stocks and sell a call to pay for the put.

The end result is your position cannot lose more than X% due to the put and cannot gain more than X% due to the call. As time passes, your long put loses value, which subtracts value from you, but your short call also loses value, which adds value to you.

You could set up a collar with a net credit or a net debit to obtain a different risk/reward profile (e.g. trade cash in hand for lower upside, or pay for more downside protection), but selling a call for about the same price as you buy a put is an attractive choice because it is sustainable and it neutralizes the forces of time decay, volatility, and interest rates that affect other options strategies.
Right, that confirms the limited gains.  What about "if markets don't move then options expire worthless (or at least cost more than the buyer paid, if in the money)".

ChpBstrd

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Re: $800,000 in cash. What to do?
« Reply #26 on: April 17, 2020, 02:41:03 PM »
Congrats on missing much of the downturn! Now I suggest protecting your position with a costless collar.
https://www.investopedia.com/terms/z/zerocostcollar.asp
Not OP, and I don't know or plan to use a "costless collar", but do I understand this correctly?
That move limits your gains in a market down -15.6% YTD.  Market volatility is not guaranteed, and if markets don't move then options expire worthless (or at least cost more than the buyer paid, if in the money).  I think "costless" hides the risk, unless I misunderstood?

You buy a put to protect your stocks and sell a call to pay for the put.

The end result is your position cannot lose more than X% due to the put and cannot gain more than X% due to the call. As time passes, your long put loses value, which subtracts value from you, but your short call also loses value, which adds value to you.

You could set up a collar with a net credit or a net debit to obtain a different risk/reward profile (e.g. trade cash in hand for lower upside, or pay for more downside protection), but selling a call for about the same price as you buy a put is an attractive choice because it is sustainable and it neutralizes the forces of time decay, volatility, and interest rates that affect other options strategies.
Right, that confirms the limited gains.  What about "if markets don't move then options expire worthless (or at least cost more than the buyer paid, if in the money)".

With the collar strategy, you hope the put you bought (long put) expires worthless, because if thatís true then your stocks are higher than the putís strike price and your overall position did better than the worst case scenario. This is like buying car insurance and going a whole year without an accident.

It would also be fine if the call you sold (short call) expires worthless or is exercised. In the call expires worthless scenario you essentially got free money from your counterparty, which you used to buy insurance. If the stock rises above the callís strike price, the entity who bought your call receives your stock and you receive the strike price. This would be the best possible performance of the position.

So, concrete example. Suppose you buy 100 shares of stock at $10, and you buy a put at the $9 strike, and you sell a call at the $11 strike.

 If by the expiration date the stock goes down to $8, your short call at the $11 strike expires worthless. The put you own allows you to sell your stock for $9 instead of $8. No matter how low it goes, you can sell it for $9. This is the worst case scenario. Youíre down 10%.

If by the expiration date the stock goes up to $12, the person who paid you for the call will exercise their rights to buy your shares for $11. The put option you bought expires worthless. This is the best case scenario. Youíre up 10%.

If the stock doesnít move beyond the $9-$11 range, the put you own expires worthless but the call you sold also expires worthless. So both an asset and a liability go to zero. If you paid as much for the asset as you got paid for the liability, itís a wash and your results are the same as someone who just held the stock.

TL;DR version: options expiring worthless are part of the plan.

MustacheAndaHalf

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Re: $800,000 in cash. What to do?
« Reply #27 on: April 19, 2020, 11:30:15 AM »
Oh, thanks for the longer explanation - I made an incorrect assumption about the call.  You buy a put, but use the stock you own to sell a call option to someone else.  Someone pays you for a call option... then you take that money and buy a put option.

Albatross

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Re: $800,000 in cash. What to do?
« Reply #28 on: May 10, 2020, 06:54:15 PM »
Just wanted to update everyone that after my initial lump sum ďjumpĒ into the market a month ago, we did our first monthly rebalancing by adding another 70% odd of our monthly salary into the market. Glad to.be staying the course and thanks for the support on this forum on keeping a consistent and unshakeable mindset.

I will say that the first 2 weeks were tough trying not to look at the market, but I seem to be finding it easier to ignore financial news now and only know my position when i rebalance at the beginning of each month.

Stay strong and healthy everyone. We will all get there.

talltexan

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Re: $800,000 in cash. What to do?
« Reply #29 on: May 11, 2020, 07:22:08 AM »
Fantastic savings rate!