Author Topic: Diversification Over Time - how slow should I move $50K cash into a fund?  (Read 1548 times)

capoevename

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Hello all, long time blog reader but new to the forum.

I recently came across $50K from selling all my vested RSUs in the company I work for (by mostly luck, I accumulated 3 years of RSUs bonuses and sold at highest the stock has ever been). I invest mostly in vanguard's lifecycle fund and I want to use the complete amount to buy more shares.

It would be a mistake to move it all at once, since I may be buying when it's high and get bad returns just because of when I have bought. So I'm trying to diversify over time, but I'm not sure how slow I should be moving the cash into shares. Do you guys have any recommendations? Why?

I thought of somewhere between 6 months and a year, but I really don't have a good rationale behind it.

Thanks for the help, specially if backed up with some explanation ;)

tiger002

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Mathematically you would be best to put it in all at once as soon as possible as opposed to dollar cost averaging over a few months to a year. The simple reason is that the market will go up over time, so the longer time you have more money in the market, the more money you would make.

Jim Collins has a post on this which goes into more detail: http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/

And Vanguard did a study a few years back showing that the lump sum beats out dollar cost averaging about two thirds of the time. https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf



MustacheAndaHalf

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If you invest a lump sum, you might be afraid of investing on the wrong day.  Most of that day to day volatility can be removed by picking 2-3 dates and investing equal chunks on each date.  The timing can be weeks or months apart, as you prefer.  That avoids investing everything on a bad day, and gives a start date with a smaller decision.  It breaks the decision to invest into smaller chunks, and hopefully makes it an easier decision to get started.

TheViking

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I would argue that if you break it up over time (say 3 times for fun) you might invest at the wrong time all 3 times.  I would lean towards "the sooner you get in the better" as the market will be going up as long as you are planning on holding.  That in addition that the market took a hit on Friday and will open lower Monday than it has in a while, I would put my money in right now if it was mine.

* Disclaimer, I assume on this site we all know that everything to do with investing is speculation. ;)

capoevename

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This is a very good point. Thanks a lot for the input and for the linked article and paper. I had not seen it from that perspective, but it makes total sense.

So far I have also kept everything in vanguard's lifecycle fund target retirement 2055 (though I plan to be financially independent in less than 10). Basically, I have it there because it's about 55% US stock, 35% international, and 10% bonds.

Should I look into other funds? Is this a bad split? I was considering starting to buy VTI.

Thanks for your input.

stashgrower

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It was the Vanguard article that convinced me. Although that doesn't stop me from thinking about DCA anyway hahaha.