Author Topic: Help, I've got $220,000 to invest and I have cold feet  (Read 5512 times)

FIKristen

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Help, I've got $220,000 to invest and I have cold feet
« on: April 13, 2016, 09:08:33 AM »
Just sold my home and I have a lovely $220,000 sitting in a bank account earning 1% interest.    My plan was to dollar cost average it into my investment accounts over the next year.   I am repeating the mantra "you can't time the market, you can't time the market, you can't time the market."  But OH MY GOD saying it is one thing, and doing it is another!  I'm scared that I'm about to throw my money in right in time for the market to fall. I'm about to wimp out and just search for a few bank accounts that provide a large cash bonus if you open an account and deposit, say, $500 bonus if you open an account and deposit $50,000 and leave it there for 3 months.   After 3 months are up, collect the bonuses and move the cash to into investment accounts.  That all seems very safe to me right now, but I know I'm just kicking the can down the road...help! 

Interest Compound

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #1 on: April 13, 2016, 09:35:22 AM »
All we can do is show you the math, and it seems you already know the math. We can't really help with the emotions. If investing gradually over the next year or two is what you need to not freak out and make any big mistakes, it's very possible this is the best choice for you. It doesn't really matter over the long-run anyway, just do what you need so you can sleep at night.

You might also want to consider if maybe your asset allocation is too risky for you. After-all, when your year is up you'll have the full $220,000 invested. Will you freak out then? I think the whole lump-sum vs DCA debate is really a debate about asset allocation and risk. If you were comfortable with the risk level of your portfolio, you'd probably have no problem throwing it all in. It's possible the additional $220,000 is making you more risk-averse.

Would you still be apprehensive if you were invested in 30/70 stocks/bonds?

onlykelsey

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #2 on: April 13, 2016, 09:40:01 AM »
I'm not sure if this is helpful, but keep in mind that the $220K was never secure when the value was in your house, either.  Real estate is very subject to swings and doesn't always go up (and certainly not predictably).

I'd push for lump sum investing over DCA, as (6/7 times, based on recent S&P 500, I believe), time in the market beats DCA.

500 bonuses for letting them hold on to 50K isn't a bad deal (4% return?) but seems administratively complex.  Maybe you throw 120K in the market, and do two 50K savings account deals to slowly pull off the bandaid.

felizcortez

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #3 on: April 13, 2016, 09:40:54 AM »
I was in the same situation last year.  I did the 500 buck sign up bonus twice (once for me and once for my wife) it ends up being about a 4% annualized return if you just take the bonus and run.  I viewed this as easy money.  It's hard to find that type of guaranteed return. 

You should read the study below from vanguard regarding DCA or Lump sum investing.

https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

I invested $200k last year close to the peak and the market promptly went down afterwards, but I held the course and it's pretty much recovered.  You need to remember that during that decline, I still received dividends on that money.  After I put the money in the market, I felt much better than just having it sit in a cash account at Ally.

You may also want to evaluate your asset allocation with the cash and understand whether that is appropriate for your risk tolerance.  If you are worried about it, you may have too aggressive of an allocation.  You want to take a holistic approach to your total allocation which the $200k in cash is probably skewing you quite a bit away from your target.


felizcortez

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #4 on: April 13, 2016, 09:43:42 AM »
I'm not sure if this is helpful, but keep in mind that the $220K was never secure when the value was in your house, either.  Real estate is very subject to swings and doesn't always go up (and certainly not predictably).

I'd push for lump sum investing over DCA, as (6/7 times, based on recent S&P 500, I believe), time in the market beats DCA.

500 bonuses for letting them hold on to 50K isn't a bad deal (4% return?) but seems administratively complex.  Maybe you throw 120K in the market, and do two 50K savings account deals to slowly pull off the bandaid.

The administrative work isn't very difficult, you just sign up for an online savings account and transfer the money and don't touch it.  Add it to your personalcapital account or mint and just wait.  Pretty easy way to make over 1000 bucks.  Took me maybe 30 mins for me to set it up so the hourly rate is nice.

nereo

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #5 on: April 13, 2016, 09:51:08 AM »
FIKristen

Some good advice here.  I'll just add the following:
1) remember that you're loosing money the longer it sits in a bank account.
2) see JL Collin's post here on why DCA sucks

but

3) understand that there's an emotional component here, and it's also perfectly ok to DCA that money into the market over a year or so.

robartsd

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #6 on: April 13, 2016, 11:37:56 AM »
I think getting the signup bonus on part of the money might be a good strategy if you don't want to put the whole sum in the market at once. 4% guaranteed return sounds better to me than bonds, so if this were my strategy, I'd consider these funds offsetting my chosen bond allocation, so my initial investments would be 100% stocks and I'd bring my accounts back in balance with my asset allocation as I finished investing the money after collecting the bonuses. The number of opportunities to get bonuses at this rate might affect how much I invest now; I'd want to structure it so that each of my investments into the market were similarly sized while taking advantage of the bonuses with the remainder. I'd tend to hedge my bets towards investing a larger sum earlier rather than later - perhaps 75% of the funds used for bonuses now, then 50% used in a second round of bonuses, then 25% in a final round of bonuses. If you don't expect the bonus opportunities to allow three rounds, then use 66% in round one and 33% in round two.

For me the emotional aspect of this would be primarily based on what percentage of my investments the lump sum represents. I'd probably only want to increase my investments by about 10-20% of net worth at a time (until I reach FI, who cares about risking the gravy after that?).

Retire-Canada

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #7 on: April 13, 2016, 11:45:32 AM »
I closed out my accounts with my old FA back in Feb or Mar and had $240K cash in my brokerage account. I invested it the same day according to my asset allocation. I also stopped thinking about it the moment I completed the last trade.

Getting my money into the market = smart.

Not having to spend lots of my precious life pondering when and how to invest that money = priceless.

MustacheAndaHalf

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #8 on: April 13, 2016, 12:26:48 PM »
Vanguard offers "admiral" funds with a $10,000 minimum, and investor class funds with a $3,000 minimum.  If you take $11,000 and put it into a low cost index, you'll have started.  I like Total Stock Market (VTSAX) with it's 0.05% expense ratio per year ($5.50 out of $11,000), and much higher returns than 1% over the long term.

Note that inflation eats that 1% return alive over the long term.  You can mistime the market and still retire... but if you keep at 1% savings rate, you are very likely not going to save enough to retire.  Be more worried about inflation, and less about the next year of stock performance.

forummm

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #9 on: April 13, 2016, 12:29:59 PM »
Quote
Help, I've got $220,000 to invest and I have cold feet

Invest in some cheap socks.

Put the rest in a Vanguard account. Many options, including Target Retirement Fund that corresponds to when you turn 65.

h2ogal

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #10 on: April 13, 2016, 03:31:02 PM »
I get the same feet with my bonus every year....I put it in cash and over the next 6 months dribble it into various stock and bond funds.   You gotta sleep at night and what you are doing is better than putting it into something crazy like penny stocks or lottery tickets....

MDM

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #11 on: April 13, 2016, 04:58:50 PM »
Can you do better (or at least no worse) than Bob? http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Eric

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #12 on: April 13, 2016, 05:23:11 PM »
Come on Kristen.  Just invest it already!  You're better than this!

FrugalFan

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #13 on: April 13, 2016, 06:50:48 PM »
I closed out my accounts with my old FA back in Feb or Mar and had $240K cash in my brokerage account. I invested it the same day according to my asset allocation. I also stopped thinking about it the moment I completed the last trade.

Getting my money into the market = smart.

Not having to spend lots of my precious life pondering when and how to invest that money = priceless.

I did something very similar in December with about 200 k and it promptly went down and has now largely recovered. I don't think I could be a market timer if I tried. I always worry that the market will keep going up and I will miss out on gains. So, any extra cash gets invested immediately. It's actually kind of fun! That DCA white paper by Vanguard linked above is actually a really good read!

Goldy

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #14 on: April 13, 2016, 06:54:48 PM »
I also just sold my house and am expecting to have 220-230k to invest and am having the exact same concerns you are having.  My plan aftermath nights of consideration is to dca in ~40k chunks or about 10k a week.  If there happens to be a downturn in the market I am prepared to go all in but I think spreading the investment out over 23 weeks is a good compromise between reducIng the risks of DCA and lump sum investing.

tonysemail

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #15 on: April 13, 2016, 07:07:31 PM »
Can you do better (or at least no worse) than Bob? http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

I enjoyed reading this story.  thanks for sharing!


FrugalZony

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #16 on: April 13, 2016, 08:00:49 PM »
I sold my house last year and had an amount a bit larger than yours to invest.
I had promised myself to invest it right away, because that's what makes most sense!
And I had run this by Jim Collins, whose advise I highly value.

Of course I still had second thoughts doing it.
I logged in and out two or three times before I finally could click on that buy button.
The money was completely invested a couple of days after hitting the account.
Plunk, plunk into VTSAX...

Of course we did have a correction after that!! (Yes guys, sorry that was me).

In any case we have mostly recovered from that dip and I am happy I did what I did.
As others have mentioned, I got a couple of dividend payments in the process...

The only thing I regret is not having gone into final asset allocation yet.
My plan was to do that after I stop working.
I feel my salary is a good enough "bond replacement", so I am right below 10% in bonds right now, instead of the targeted 25%.
There were a couple of times in recent weeks where I wish I had been in final allocation already.

Now that we have recovered, whew, I'll actually start moving towards final allocation as I am getting ready to resign.


You know what makes most sense, but in the end you have to do what you have to do in order to be able to sleep
Good luck!

FIKristen

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #17 on: April 13, 2016, 10:33:03 PM »
Can you do better (or at least no worse) than Bob? http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

I enjoyed reading this story.  thanks for sharing!

This is a good reminder - great little story! 

FIKristen

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #18 on: April 13, 2016, 10:39:16 PM »
Thank you all! Good reminders, tips, and examples.  I can do this.  I've got the right asset allocation and I'm going to start the DCA tomorrow.   I liked the reminders especially that the money wasn't "secure" when "invested" in the house - home values go up and down - and that once it is invested, I can stop worrying about how to invest it.   


markbike528CBX

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #19 on: April 14, 2016, 10:40:42 AM »
once it is invested, I can stop worrying about how to invest it.

I need to get there myself, especially with some cash in a 401K AND several years to 59.5 (ducks facepunch) .

But sometimes it is so interesting and exciting and it gives me something to think about.

FLBiker

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Re: Help, I've got $220,000 to invest and I have cold feet
« Reply #20 on: April 14, 2016, 11:06:58 AM »
Getting my money into the market = smart.

Not having to spend lots of my precious life pondering when and how to invest that money = priceless.

I totally agree with this.  Not having to worry about money (including where and when to invest it) is great!