Poll

What would YOU do given my situation.

Invest the 401k and Roth funds in a lump sum according to AA (75/25)
DCA the 401k and Roth funds over the course of 6 months according to AA (75/25)
DCA the 401k and Roth Funds over the course of a year according to AA (75/25)
Other (please explain in comments)

Author Topic: Analysis Paralysis (Holding Entirely Way Too Much Cash)  (Read 4555 times)

2Birds1Stone

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Analysis Paralysis (Holding Entirely Way Too Much Cash)
« on: December 07, 2016, 09:08:34 AM »
I recently initiated a roll in contribution of a rollover IRA into my employer's 401k

I also did a backdoor roth contribution, which resulted in my funds being deposited into a MM account within my Roth due to Vanguards frequent trading limits.

The 401k contribution check was cut almost a month ago, in that time the stock market has risen quite a bit. Which is leading to an irrational hesitation of putting the money right back into a total stock fund.

I am now sitting on a disproportionately high percentage of my portfolio and net worth in cash.

Total Portfolio is $170k
Total Net Worth is $250k


I am ~6.5 Years from FIRE

I have the following

$32,500 cash in the 401k (from the rollover)
$7,200 cash in my HSA
$5,900 cash in my Roth IRA (backdoor Roth conversion, can't put into total stock for a few more weeks)
$5,500 cash in my Taxable account (going to be moved into Roth IRA Jan 1st)
$51,100 Total Cash within Portfolio

This represents exactly 30% of my current investment portfolio.

I am very irrationally hesitant to just dump it back into the stock market, as stupid as it sounds.

I want to poll the MMM crowd to see what YOU would DO.

Please vote with what YOU would do given my situation, not what you THINK I should do.

Happy to hear your explanations in the comments below. If you need any more info from me, don't hesitate to ask.

neo von retorch

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #1 on: December 07, 2016, 09:17:35 AM »
When I rolled over investments earlier this year, I immediately invested them. No one can predict the future, but I suspect the market just might run up another 6 months, and then decide to correct itself ;)

talltexan

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #2 on: December 07, 2016, 09:18:48 AM »
It sounds as though your target allocation is 75% stocks...and you have 30% in cash. So why not just move 5% cash immediately into stocks?

ysette9

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #3 on: December 07, 2016, 09:23:58 AM »
I can't put the link in here while typing on my phone, but just google the vanguard white paper on lump sum versus dollar cost averaging a sum of money. The analysis is that lump sum wins because, to put it simply, "time in market beats market timing". If you look up dollar cost averaging in Wikipedia, the inyroductory paragraph also states that DCA is inferior to lump sum investing IF you have a chunk of money now to put in. Clearly this is different from DCA investing you do each paycheck.

The market may go up or may go down immediately after you invest. Probability is on your side that it will work out in your favor.

2Birds1Stone

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #4 on: December 07, 2016, 09:29:30 AM »
The rational part of my brain knows all of this lol!

The irrational part says....dummy, the stock market made 50-75% of its YTD gains in the past 30 days.....how long is that sustainable for.

It sounds as though your target allocation is 75% stocks...and you have 30% in cash. So why not just move 5% cash immediately into stocks?

Because I also have bonds and precious metals in my portfolio.

Right now my AA is all out of wack lol.

Retire-Canada

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #5 on: December 07, 2016, 09:46:46 AM »
The irrational part says....dummy, the stock market made 50-75% of its YTD gains in the past 30 days.....how long is that sustainable for.

If events of the recent past have taught us nothing else it should be apparent that predicting the future is pointless. There could be a huge market crash on 1 Jan. The market could stay flat for 18 month or there could be a huge rally in Jan 2017 when Trump takes all restrictions of US businesses and drops tax rates.

I don't know what's going to happen, but I'm not willing to bet against the stock market with my cash.

Rubyvroom

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #6 on: December 07, 2016, 10:18:17 AM »
I will admit I'm the one vote for the weak stomach and DCA over 6 months, only because you said to vote with what I would do in your situation.

This is exactly what I did back in September. I had maybe $60K cash to invest, and was freaked out to put it all in at once with the election right around the corner, so I created a plan to invest it over the course of 6 months.

The only thing I didn't anticipate with this strategy was 6 months of ongoing moments of weakness where I'm second guessing the timing of my monthly contributions... maybe if I wait a week the markets will dip! Maybe this is a market dip! Should I invest now or hold? What about that stupid report that just came out?! Oh god the next day another stupid report just came out! What does it all mean?!

In the end, I have been able to talk myself off the ledge every time I have a moment of weakness and have stuck to my plan 100%. I would have saved myself a headache if I would have just thrown it all in at once (and made more money).

So in retrospect, with markets at all time highs, was DCA a smart financial move? Nope! Did I endure additional stress in constantly second guessing my investing plan while trying to time the market? Sure did. But did I sleep better at night? Yeah, sort of. 

The "smart" decision is to go all in... if you have a weak stomach like me, try putting some in each week for 2-3 months or something. 6 months is the pits. It's too long to be paying that much attention.

rockstache

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #7 on: December 07, 2016, 10:23:28 AM »
I'd dump it all in. Not because I have a particularly strong stomach at all, but just because that is the PLAN. I am a stickler for sticking to the PLAN unless I think I am smarter than it. I just don't think I could accurately predict what was going to happen, and I would personally kick myself far more for doing DCA and having it turn out to be a bad idea than if I dumped it all in and it dropped a bit.

BlueHouse

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #8 on: December 07, 2016, 10:44:10 AM »
oh gosh, that sucks that this major volatility happened while you were transferring the funds.  I recently did the same thing, but my timing was luckier and much less volatile. 

I am with you 100% in not wanting to dump it all back in now.  I know I'll take heat for this, but I personally would hold it all in cash until after Jan 20 (unless we see a giant dip first) and then start DCA back in for a 1 year DCA...but adjust whenever you see a dip.  I know this is market timing and I can't stop myself!  I look at the market every day at 3:45 to see if I want to purchase that day or another.  Honestly, waiting a month or two is not going to kill anyone. 

Yes, I know there are times you lose out on doing this.  I have a big chunk also sitting in a MM waiting to feed my VTSAX, but unfortunately, I was in a meeting at 3:45 on the day I wanted to do it, and then the market exploded.  I lost out.  So what.  I'm still holding it in cash until January.  No big moves for me right now.  When I set up my AA, I didn't expect the kind of volatility we're seeing right now.  If I had, I would have assigned more to cash -- that's how I see it.

grettman

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #9 on: December 07, 2016, 10:54:17 AM »
What would I do?  I would carve out 6 months of living expenses as an emergency fund and then dump the rest into the stock market.  I also wouldn't FIRE as quickly as you plan to do either.  I don't know your situation but I wouldn't feel comfortable with FIRE'ing that young with such low resources -- maybe you have this figured out.  Don't know....

Roots&Wings

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #10 on: December 07, 2016, 11:09:51 AM »
I will admit I'm the one vote for the weak stomach and DCA over 6 months, only because you said to vote with what I would do in your situation.

Me too. I'd DCA the funds since that's what I'd actually be comfortable doing vs. solely the data.

2Birds1Stone

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #11 on: December 07, 2016, 11:34:12 AM »
It's funny because I've made similar threads in the past.


This particular one was on June 16th 2016.

http://forum.mrmoneymustache.com/investor-alley/psychology-of-lump-sum-investmenting-why-is-it-so-hard/

I invested $15K+ shortly after in a lump sum. Two weeks later we had the biggest 1 week drop in a long time.


I guess I have a history of getting burned when I do lump sum investments!
This one was when I rolled over $22k into an IRA from my old employers 401k back on March 1 2015.

http://forum.mrmoneymustache.com/investor-alley/need-some-mmm-insight/

Over the next year the stock market corrected over 20% and we didn't reach those 2015 highs till July 2016


Rubyvroom

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #12 on: December 07, 2016, 11:39:14 AM »
I guess I have a history of getting burned when I do lump sum investments!

I totally understand. My last soiree into personal investing was sometime in July 2015. It felt a bit like this:

https://www.youtube.com/watch?v=_nVk25ZvTkU

(from South Park - safe for work)

Retire-Canada

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #13 on: December 07, 2016, 01:48:31 PM »
I guess I have a history of getting burned when I do lump sum investments!

The S&P was 2071 on 15 June 2016 and it's now 2239 - plus you would have rec'd dividends for the 3rd Q then. Regardless of the late June drop that's still called "getting rich" not being burned.

letired

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #14 on: December 07, 2016, 05:36:17 PM »
I would probably DCA over a time period shorter than 6 months. I like the every week idea. Three months sounds nice?

I have an actively managed fund floating around and I recently switched from reinvesting the dividends to having them payed out to my bank account. With the singular payout since making the switch, I unhesitatingly dumped it all back into VTI at once (~2k).

I was very tempted to choose 'other' and recommend installing one of those browser blockers that you can use to block facebook during work hours and block all financial sites for 6 months after dumping the whole thing in. :)

good luck! You can do it!

Mr. Boh

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #15 on: December 09, 2016, 02:11:05 PM »
I would DCA over 6 months with the caveat that I would buy extra on a dip. Probably market timing but that's what I would do.

Heckler

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #16 on: December 09, 2016, 09:33:42 PM »
Set it back into wack. That's the point of having an AA.

theolympians

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #17 on: December 11, 2016, 11:46:52 AM »
You have the cash now, get it into the market! Don't wait! Then continue to dollar cost average with steady/automatic contributions.

Remember investing is concerned with overall---over a longer term---growth. The day to day fluctuations are irrelevant. There is much ado on this site about "not timing the market", then more than half of the advice is related to timing the market. For example: put in half now then some later.

Get it in the market. In five or ten years you won't remember. Continue with steady contributions: dollar cost averaging.

Here is my opinion: The market has risen with Trump's election. The companies in the market did not change their fundamentals. Part of market response is emotional---People are confident that Trump will be excellent for business and the economy and getting in now, with the thought that there will be much more growth. I agree with that.

Irregardless, get the money in the market, that is what those accounts are designed for. If you are uncomfortable with individual company stocks, index funds, Vanguard or Invesco are good. After you do, check your account in six months. Day to day will drive you crazy and can cause you to respond to short term fluctuations. You'll be happy in ten years that you did.

marty998

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #18 on: December 11, 2016, 01:27:01 PM »
Here is my opinion: The market has risen with Trump's election. The companies in the market did not change their fundamentals. Part of market response is emotional---People are confident that Trump will be excellent for business and the economy and getting in now, with the thought that there will be much more growth. I agree with that.

Oh but the fundamentals did change - the market has been busy trying to value the expected change in tax rates, which fundamentally will increase the after tax profits of these companies. Hence the rally.

Irregardless

The prefix (Ir) duplicates the suffix (less), so is unnecessary.

(Sorry, once a pedant, always a pedant).

Livewell

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #19 on: December 11, 2016, 01:27:52 PM »
The best way to think about this is not to time the market,  it to ask yourself "will the value of the stock market be higher or lower when I actually need this money."

Maybe you apply some level of risk management and personal comfort into the mix, which based on your split is what you've already done.

You're at least seven years from needing this (based on your fire estimate), likely longer.  And don't forget that while you are still saving you will be able to take advantage of any downturn.

Based on this it's a no brainer to lump sum IMHO

frugledoc

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #20 on: December 11, 2016, 01:51:06 PM »
Just jump and do it.  Scream if you have to. 

Once you've done it you'll feel relieved.

mustachepungoeshere

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Re: Analysis Paralysis (Holding Entirely Way Too Much Cash)
« Reply #21 on: December 11, 2016, 01:58:24 PM »
Irregardless

The prefix (Ir) duplicates the suffix (less), so is unnecessary.

(Sorry, once a pedant, always a pedant).

Department of Redundancy Department...



Edited for formatting.
« Last Edit: December 11, 2016, 07:04:28 PM by mustachepungoeshere »