Author Topic: Let equity payment sit on the sideline during the current run-up?  (Read 3227 times)

Punched Face

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After shorting myself in the savings department earlier in my career, I've been fortunate enough to overcome that mistake by receiving a ~$500k equity payment this quarter. However, I'm undecided if now is a good time to get into the market and would love some guidance...

My plan is to put the majority into a Betterment account and just sit back, but I'm terrified of the current run-up in the stock market. Each of the past five-year periods has been marked by a period of substantial growth, followed by horrific collapses. Moreover, the market is at an all-time high, which is the opposite of "buying low". I can hear the voices of "past performance is no guarantee of future results" and "don't try to time the market", but would love to hear some perspectives on timing. Put it all in? Wait until the market drops? Contribute on a rolling basis?

Right now it's really tempting to let the money sit on the sideline until there's some significant downward movement in the market. I know on a long enough timeline I'll still be ahead, but there's a big difference in gains for those people that invested heavily in 2007 compared to those who were fortunate in their timing and invested in 2008.

Heckler

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Re: Let equity payment sit on the sideline during the current run-up?
« Reply #1 on: November 29, 2014, 10:13:29 AM »
You ran into half a mil you don't know what to do with????


You're done!  Go sit on a beach.




I'm seriously curious though, how does one get a $500k payment?

Punched Face

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Re: Let equity payment sit on the sideline during the current run-up?
« Reply #2 on: November 29, 2014, 10:42:25 AM »
I know, I know... Woe is me.

The equity came with the sale of our company. I was fortunate enough to have been granted significant shares with each passing year after in return for pouring a lot of blood sweat, tears and missed family events.

AJDZee

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Re: Let equity payment sit on the sideline during the current run-up?
« Reply #3 on: November 29, 2014, 10:52:37 AM »
Cue the chorus of folks that will say you can't time the market, so don't worry about the 'all time market highs'... which is easy advice to give when it's not your own $500k. lol

I am one of those fortunate ones that started investing in 2008, so I've seen some great growth and volatility.

As someone who plays things on the conservative side, I get your hesitation to throw all into the market.
My advice to you is keep in mind when you will need this money to actually add value to your life (i.e. go from being just a number on a page to paying for your groceries, etc.) and diversify accordingly.

Your post didn't give any indication of your age or when you want to retire, or how much $ it takes for you to live a month in 'Punched Face's' shoes. Understanding these should get the ball rolling on a solid investing strategy you'll be happy/comfortable with.

Your phrasing is suggesting you're concerned about 'timing' rather than diversifying - I think contributing over a period of time is a great option. Mathematically it will lessen the returns if the market keeps going, but it will also lessen the losses if the market dips. Either way, I think you'll sleep better at night with that strategy.

Also, throw out the notion that you can/will get in at the bottom and get out at the top. As hard as you might look at those charts to deduce when is 'the right time', the truth is you will never know for certain because there's still about 50 years to the right of the chart you're not seeing. :p

So the question to throw it all in now vs later vs increments over time should be answered by research to find out your investing strategy/personality/risk tolerance. (IMO)
« Last Edit: November 29, 2014, 10:54:59 AM by AJDZee »

Cecil

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Re: Let equity payment sit on the sideline during the current run-up?
« Reply #4 on: November 29, 2014, 12:11:14 PM »
>  I can hear the voices of "past performance is no guarantee of future results"

It's more like, "past performance is *not an indicator of* future results". That is to say, the current price of the S&P index, or the performance over the last 5 years, is not in any way related to the results over the next 5 years. They are uncorrelated.

I'll say that again - the market's performance over the last 5 years is completely unrelated to how it will do in the future.

I tested this - I collected data on the value of the US stock market going back to the 1800s. The long-term real performance is nearly always 7%, whether your time frame starts from a record high, from the bottom of a crash, from a period of stagnation. You always get 7%-ish long term returns.

That said, if you invest all your money on Monday and the market crashes 25% on Tuesday, there will serious psychological ramifications given the source of this money. I'd say invest ~$50k per month for the next 10 months. Mathematically you stand to miss out on ~$15k in gains that way, but you also insure yourself against a serious drop. You could spread over a shorter or longer time period based on your own risk tolerance.
« Last Edit: November 29, 2014, 12:14:31 PM by Cecil »

Radagast

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Re: Let equity payment sit on the sideline during the current run-up?
« Reply #5 on: November 29, 2014, 01:08:50 PM »
You could go Permanent-Portfolio style and make small purchases (say $100,000 each) of equal amounts of long term US treasuries and gold, knowing it is virtually certain one or both will go up if stocks go down.

Or, you can do the same with foreign and emerging markets, since they have not been going up recently.

Or you can "value average" in, increasing your stock holdings by 1% each month, selling high and buying low to meet that objective.

Or dollar cost average in, adding $10,000 per month regardless.

Or you can keep it simple and just dump it all in at once.

slugline

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Re: Let equity payment sit on the sideline during the current run-up?
« Reply #6 on: November 29, 2014, 07:21:05 PM »
You need to declare a goal for this money and define a time frame for this goal. That will guide you to the appropriate investment. Likely to need it for a real estate purchase in six months? Stash it in a conservative bond fund. Not really needing to tap it for ten years or more? Go all in with stock index funds. But you must have some sort of time horizon to manage the volatility risk.