Just sold my house, scared to invest right now!

[justostash]

I just sold my house, have a few 100K out of the sale, and I'm a bit stuck as to what to do right now. Especially following MMM's latest post: http://www.mrmoneymustache.com/2017/06/20/next-recession/
I'm a bit scared to dump it all into either my wealthfront account or another stock market related investment. This cash represents most of my life savings. I do not plan on buying another house in the coming years.
Logically I know that the stupidest thing to do is leave it uninvested... and, you can't time the market! But boy, does anybody else feel like this most recent run is ready for a tailspin?  Thoughts?  Thanks much!

[Aggie1999]

Nope. I just dropped a substantial sum from a CD that matured directly into total market and international market indexes.

[Psychstache]

I just sold my house, have a few 100K out of the sale, and I'm a bit stuck as to what to do right now. Especially following MMM's latest post: http://www.mrmoneymustache.com/2017/06/20/next-recession/
I'm a bit scared to dump it all into either my wealthfront account or another stock market related investment. This cash represents most of my life savings. I do not plan on buying another house in the coming years.
Logically I know that the stupidest thing to do is leave it uninvested... and, you can't time the market! But boy, does anybody else feel like this most recent run is ready for a tailspin?  Thoughts?  Thanks much!

You post basically ends with:

'So you can't time the market, but I think I should time the market. What do you guys think?'

I think you can't time the market.

Not that it should matter, but I also put my money where my mouth is. I recently got a six figure sum and directly dumped it into my investment account.

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[Heroes821]

If you are uncomfortable dumping the entire thing in at once.  You can always dollar cost average for your own piece of mind.

Personally I'd make sure my emergency fund was where I wanted it, fund any college funds that needed funding for the year and then dump it all in according to my Investment Policy Statement which is and email I made to myself saying 30% this 20% that blah blah.

[Financial.Velociraptor]

What is your target asset allocation?  If you are nervous, you probably aren't including enough fixed income type investments.  There is a lot of bravado on this site with people recommending 100% equity.  That's easy to support in a record setting bull market.  When things get mushy, the bond holders will start to appear to have the most wisdom.  I like 40% fixed income which I mostly deploy into closed end bond funds.  I sleep well at night.

[Cycling Stache]

What is your target asset allocation?  If you are nervous, you probably aren't including enough fixed income type investments.  There is a lot of bravado on this site with people recommending 100% equity.  That's easy to support in a record setting bull market.  When things get mushy, the bond holders will start to appear to have the most wisdom.  I like 40% fixed income which I mostly deploy into closed end bond funds.  I sleep well at night.

I'm 100% equities, but I also paid off my house (much to Boarder 42's chagrin, I'm sure), so I'm comfortable with that.

I think the issue is less asset allocation and more the sense that a person will feel terrible putting a large amount of money in and then the market drops significantly right afterwards.  If I only had waited X days, months, whatever, I wouldn't have lost that money.  It's classical behavioral economics.

OP, the correct way to look at this is that every single person with money in the market is making the decision every single day whether to keep the money in the market or take it out.  We don't think like that because of behavioral errors, but in fact, the decision you're making to put a large amount of money in the market today is the same decision I'm making to keep a large amount of money in the market today.  For your situation, it feels like a big risk.  For my situation, it seems obvious to stay in because you can't time the market.  The logical error is evident once you realize that both situations are identical.

The market might go down tomorrow.  It might go down significantly.  But if you can't time the market, you are basing the decision to invest on two principles (1) the market goes up over the long term, and (2) it is statistically more likely that the market will be up rather than down on an particular day, so you should invest as early as possible.

Unless you're going to tell me to pull my money out because you know the market, you should put the money in.  Then we'll be in the same position tomorrow, and each making (or not making) the decision to keep the money in the market the next day, the day after that, etc.  And you'll keep it in (as will I) because you can't time the market.

If you're not comfortable with the idea of keeping the money in the market, then yes, that's an asset allocation problem, and you need to think about asset allocation and what risk you can tolerate.  But the decision whether to put in today is typically just the behavioral economics error above, not a decision about asset allocation.

Good luck!

 

[Abe]

Are you planning on buying a new home in the next several years? If so, will you use this profit to cover the down payment for the next one? I'm in that situation and recommend putting the money in a bond mutual fund to combat inflation while avoiding major swings. CDs are very low right now, but may be an even safer alternative (except for the inflation risk).

[runewell]

If you are uncomfortable dumping the entire thing in at once.  You can always dollar cost average for your own piece of mind.

Except that dollar cost averaging is market timing and fake piece of mind. 

I recommend having exposure to less expensive international markets (1/3) and bonds (1/3) in addition to US (1/3) if you are worried about the market being expensive (which perhaps you should).

[Louisville]

What is your target asset allocation?  If you are nervous, you probably aren't including enough fixed income type investments.  There is a lot of bravado on this site with people recommending 100% equity.  That's easy to support in a record setting bull market.  When things get mushy, the bond holders will start to appear to have the most wisdom.  I like 40% fixed income which I mostly deploy into closed end bond funds.  I sleep well at night.

This. It's your asset allocation that should be mitigating market swings, not market timing.

[Cali Nonya]

Hoping to sell a house shortly and having the same concern as OP. 
Following ...

[Heroes821]

If you are uncomfortable dumping the entire thing in at once.  You can always dollar cost average for your own piece of mind.

Except that dollar cost averaging is market timing and fake piece of mind. 

I recommend having exposure to less expensive international markets (1/3) and bonds (1/3) in addition to US (1/3) if you are worried about the market being expensive (which perhaps you should).

I agree with you, I'm just saying if the OP has this mental barrier at least DCA gets the money into the market instead of being scared for 6 months sitting in a savings account.

[runewell]

I agree with you, I'm just saying if the OP has this mental barrier at least DCA gets the money into the market instead of being scared for 6 months sitting in a savings account.

If they have a mental barrier they should probably leave their cash on the sidelines until they know what to do with it, rather than just guessing willy-nilly.  The US market has a quite high P/E ratio right now but a fair amount of the rest of the world does not.  Historically high P/E's result in low returns and vice versa.  If our goal long-term is to get some kind of positive return, a total stock market ETF such as VT should do the trick, possibly with a bond component.  VT is only 55% US.

[frugalnacho]

What does your IPS say to do? Do that.

[justostash]

Wonderful discussion everybody, thanks so much for the sane advice: Particularly the philosophy from Cycling Stache that everybody who has money in the market, in essence, could be making a decision every day whether to leave it there or not. So the decision situation for someone with a lump of uninvested cash is not really any different than anybody who has a lump of change invested. Also, the idea from several folks that asset allocation is what I should be thinking about rather than timing.

My wealthfront account already has my asset allocation setup for the kind of risk I'm comfortable with right now in my life (I believe a 7 / 10 by their metric): 35% US Stocks, 21% foreign stocks, 16% emerging markets, 15% municipal bonds, 8% dividend stocks, 5% natural resources, So it probably makes sense to allocate most of of my proceeds there.

Now, one further thought, that I know is covered in other discussions, is whether there is a more responsible way to invest (as in enviro/socially responsible) than just dumping my money into the collection that wealthfront decides for me.

[WildJager]

I put my entire life savings into the market in mid 2007.  It was about $35k or so.  Whoops.  Quickly watched that slice in half over the next two years.  My income was maybe $600 a month, so it was a lot of money to me relatively speaking.  However, like you, I knew the logical answer was to just wait it out because the market has always trended up (and, let's be honest, if the market crashes completely having a bit of cash on hand isn't going to do you much good in the long run).  The market recovered, I continued to invest while it did, and it turned out fine. 

If you're in the accumulation phase, worrying about the market imploding or stagnating is a moot point.  If it happens, you have to keep working because FIRE is no longer a feasible concept. 

If you're in the withdrawal phase, worrying about the market imploding or stagnating is a moot point.  You better get a job because your stash is no longer enough to make FIRE a feasible concept.  Welcome back to the rest of humanity.

Point is, we're playing an interesting game during an interesting time in history.  Either you accept that FIRE is a viable concept or you don't.  Being wishy washy isn't going to change the outcome.  Sometimes you just have to jump head first into the deep end and go for it.  Or stay on shore and play it safe.  There is no in-between.

Or, to quote a famous philosopher, "Do or do not, there is no try."

If it makes you feel better, statistically speaking 2/3rds of the time lump sum investing will earn you more money than dollar cost averaging.  That doesn't even account for the buying power lost via inflation for the cash you keep on the sidelines.  That's brought to you by Vanguard if you want to read the paper on it.

[Mighty-Dollar]

I'm a bit scared to dump it all into either my wealthfront account or another stock market related investment.

Ever heard of bonds? Diversification?

[AdrianC]

I'm a bit scared to dump it all into either my wealthfront account or another stock market related investment.

Ever heard of bonds? Diversification?

28% stocks/72% bonds - A happy result that it is certain will not repeat over the next 16 years.

(100% Vanguard total bond fund did even better over this time period).

[Mighty-Dollar]

28% stocks/72% bonds - A happy result that it is certain will not repeat over the next 16 years. (100% Vanguard total bond fund did even better over this time period).

It's the LOWEST volatility. If you want to suppress downside risk as much as possible then you take the lowest risk. When you take the lowest risk you will not participate in all of the upside of the market. I'm just showing the OP that if you're terrified of the stock market then at the VERY LEAST they would be much better off with a bond heavy portfolio than to just sit in cash.

[Cali Nonya]

Any specific bond fund recommendations?

[dandarc]

Any specific bond fund recommendations?

Vanguard Total Bond Market is usually a good one.

[AdrianC]

28% stocks/72% bonds - A happy result that it is certain will not repeat over the next 16 years. (100% Vanguard total bond fund did even better over this time period).

It's the LOWEST volatility. If you want to suppress downside risk as much as possible then you take the lowest risk. When you take the lowest risk you will not participate in all of the upside of the market. I'm just showing the OP that if you're terrified of the stock market then at the VERY LEAST they would be much better off with a bond heavy portfolio than to just sit in cash.

That's fine, as long as OP understands that your example shows two huge bear markets in stocks, which may or may not repeat, and one huge bull market in bonds which no way, no how can repeat from here.