How to invest cash left over from not buying a house

[mcbklyn]

Hi,

We have some cash saved for a downpayment on a house but we decided to do rental instead for next several years.
So we will have 50k free to invest that I want to put into VTI.

Question: How should I invest that money? Put all of it into VTI in one buy or spread it out into let's say 12 monthly purchases?
If I buy at one time I risk buying at the height of the market.
If I spread it out into 12 months (or less/more) I am loosing money due to inflation, opportunity cost etc.

What other people do in such a case?

P.S 50k is substantial amount for us.
Thanks

[Retire-Canada]

Just invest it in one go and get on with your life. I've done much bigger lump sum purchases and not regretted it. Occasionally the market goes down afterwards, but it has always come back up. Usually the keeps going up and I am glad I got the money in when I did.

[MrGville]

Invest in all at once.  There is no way to determine exactly what the market would do.  If you spread if out over 12 months, you could miss out on gains that occurred at the beginning of the year.  Alternatively, if you invest it all at once, the market could drop and you'd lose money initially...no way to know for sure.  I've always just invested and let the money ride.

[bortman]

mcbyln, you're in a similar situation to mine in the recent past. As many have said in other posts, 66% of the time lump sum investing does better than dollar cost averaging. That said, I took a hybrid approach and did lump sum for a portion then DCA for the rest. I did it this wasy to assuage my fears, not as a strategy to make more money. That said, I did question this approach ...

Check out these posts for encouragement and a few facepunches.

http://forum.mrmoneymustache.com/investor-alley/what-to-do-(cash-on-the-sidelines)/msg761743/#msg761743

http://forum.mrmoneymustache.com/investor-alley/stop-dca-during-correction/msg782660/#msg782660

[MustacheAndaHalf]

There's a problem with the advice here - it assumes a 10+ year time frame where dips in the stock market cna even out.  But that's not your situation - you only plan to rent for "the next several years", which could be only 2-4 years before buying a house.

The shorter the time frame, the more bonds you need to keep your money stable.  I'd start out splitting the difference (50% bonds / 50% stocks), and as you approach the last 1-2 years before buying, switch to mostly bonds (75% bonds / 25% stocks).  The gains are nice... but if the stock market corrects, there goes your house.  The downside prevents you buying, so you need to watch that risk.

You can take a higher risk if you're willing to delay your house purchase for as many years as the stock market takes to recover from a crash.  Which, by the way, is actually unknowable but has tended to be ~1-2 years.

[Retire-Canada]

There's a problem with the advice here - it assumes a 10+ year time frame where dips in the stock market cna even out.  But that's not your situation - you only plan to rent for "the next several years", which could be only 2-4 years before buying a house.

The shorter the time frame, the more bonds you need to keep your money stable.  I'd start out splitting the difference (50% bonds / 50% stocks), and as you approach the last 1-2 years before buying, switch to mostly bonds (75% bonds / 25% stocks).  The gains are nice... but if the stock market corrects, there goes your house.  The downside prevents you buying, so you need to watch that risk.

You can take a higher risk if you're willing to delay your house purchase for as many years as the stock market takes to recover from a crash.  Which, by the way, is actually unknowable but has tended to be ~1-2 years.

If the OP puts the money in stocks and they go up 25% $25K in two years then the market crashes and he loses 25% $25K he doesn't have to wait at all for the market to recover if he doesn't want to. Sure it would feel shitty to need the money during a crash, but unless the crash happens immediately and you need the money immediately it doesn't take that long for your gains to remove a lot of the risk of a crash.

[Lumberjack]

25% correction from a high of 125% cost basis is still a net loss.

[Retire-Canada]

25% correction from a high of 125% cost basis is still a net loss.

Edited my post.

[MustacheAndaHalf]

There's a problem with the advice here - it assumes a 10+ year time frame where dips in the stock market cna even out.  But that's not your situation - you only plan to rent for "the next several years", which could be only 2-4 years before buying a house.

The shorter the time frame, the more bonds you need to keep your money stable.  I'd start out splitting the difference (50% bonds / 50% stocks), and as you approach the last 1-2 years before buying, switch to mostly bonds (75% bonds / 25% stocks).  The gains are nice... but if the stock market corrects, there goes your house.  The downside prevents you buying, so you need to watch that risk.

You can take a higher risk if you're willing to delay your house purchase for as many years as the stock market takes to recover from a crash.  Which, by the way, is actually unknowable but has tended to be ~1-2 years.

If the OP puts the money in stocks and they go up 25% $25K in two years then the market crashes and he loses 25% $25K he doesn't have to wait at all for the market to recover if he doesn't want to. Sure it would feel shitty to need the money during a crash, but unless the crash happens immediately and you need the money immediately it doesn't take that long for your gains to remove a lot of the risk of a crash.

Why is that one scenario the only thing that can happen?

[Retire-Canada]

Why is that one scenario the only thing that can happen?

I didn't say it was the only thing that could happen.

[VoteCthulu]

The stock market is not a good place to put money you want to spend in 2-3 years. Bonds are more stable, but with the expected rate hikes I would probably stick with CDs or high interstate savings accounts right now.

One other thing to consider, is if you've been saving say $10k per year towards the house, you could invest 30k today and then continue saving 10k/yr for the next 3 years in cash for the down payment.