Entering the market - good strategy?

[tgz_lime]

Hi,

Currently I've got most assets in cash, however, I've read about the benefits of passive index fund investing and would like to go for it. My worry is, that I'm about to make a decision about an amount of money that is approximately 100 times more than my monthly savings amount. Therefore, my jump into index funds is "timing the market", since now I don't have the chance of spreading out all these buys into 100 individual buys at different market conditions, but I'm buying the current market with a very large weight in my portfolio. Unfortunately most of the investment strategy recommendations are not considering the case when you already have sums that is way higher than your monthly savings.. Is there anything clever I can do in this situation? Like buying in smaller amounts over a year or buying separate markets all over the world to avoid getting into something overvalued?

Thanks for any hints or article recommendations!

[frugledoc]

Quick answer and what I would do is:
1) Choose your asset allocation (equities/bonds), for the equity component you want vanguard all world, and BND for your bonds
2) Lump sum and leave it to mature over multiple decades
3) Continue to add new savings as soon as you get them, rebalancing if your asset allocation swings too far from your baseline.
4) Re-invest all dividends
5) Look back in 30 years time and laugh at how you worried about such things

Do it, do it now. The market is always scary, but you just need to jump in. Scream if you have to!

[TheStachery]

Quick answer and what I would do is:
1) Choose your asset allocation (equities/bonds), for the equity component you want vanguard all world, and BND for your bonds
2) Lump sum and leave it to mature over multiple decades
3) Continue to add new savings as soon as you get them, rebalancing if your asset allocation swings too far from your baseline.
4) Re-invest all dividends
5) Look back in 30 years time and laugh at how you worried about such things

Do it, do it now. The market is always scary, but you just need to jump in. Scream if you have to!

I would also consider age.  The OP may not have 30 years.


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[frugledoc]

Higher age, just have a few more bonds

[tgz_lime]

Quick answer and what I would do is:
1) Choose your asset allocation (equities/bonds), for the equity component you want vanguard all world, and BND for your bonds
2) Lump sum and leave it to mature over multiple decades
3) Continue to add new savings as soon as you get them, rebalancing if your asset allocation swings too far from your baseline.
4) Re-invest all dividends
5) Look back in 30 years time and laugh at how you worried about such things

Do it, do it now. The market is always scary, but you just need to jump in. Scream if you have to!

I would also consider age.  The OP may not have 30 years.


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Exactly, I'm in my thirties and would like to retire in the next few years, so if the market dumps 30% in a year, that's a pretty substantial hit to the funds I'd be relying on to have some income.

[tgz_lime]

Higher age, just have a few more bonds

I was also thinking about doing this, or at least start with a higher percentage of bonds and gradually, over the years, scale more into stocks, so my initial investment is spread across different market situations.

The difficulty here is that we're in a period of rate hikes, so long term bonds may not be the best investment..

Maybe starting with a larger percentage of short-term bonds + stocks and then allocate more into stocks over a multi-year time span.

[Mr Mark]

Quick answer and what I would do is:
1) Choose your asset allocation (equities/bonds), for the equity component you want vanguard all world, and BND for your bonds
2) Lump sum and leave it to mature over multiple decades
3) Continue to add new savings as soon as you get them, rebalancing if your asset allocation swings too far from your baseline.
4) Re-invest all dividends
5) Look back in 30 years time and laugh at how you worried about such things

Do it, do it now. The market is always scary, but you just need to jump in. Scream if you have to!

I would also consider age.  The OP may not have 30 years.


Sent from my iPhone using Tapatalk

Exactly, I'm in my thirties and would like to retire in the next few years, so if the market dumps 30% in a year, that's a pretty substantial hit to the funds I'd be relying on to have some income.

How do you intend to create a FIRE portfolio?  The 4% guide assumes a mix of equity and bonds. While the lost returns you've had give me a pain to even think about, going forward  you'll need to create an income generating portfolio in order to FIRE. ..

Cash and bonds only would be a disaster.  So given you'll need either stock or real estate eventually delay will probably just make it worse.

[Car Jack]

I don't think your real question is a strategy to enter the market.  I think you have not yet decided that you even want to enter the market.

From that perspective, you really want to figure out for yourself what your realistic goal is to be financially independent and then create a strategy for investing.  If you decide that you have enough to retire right now.....and that's what you are going to do......and you can tolerate zero downturn in the market, then off to Ally (or some other place) to find the best CD ladder you can find.

The market will go up and down with a trend over time of going up.  If you don't believe that, then you have no business looking to invest in the market. 

If you have decided that you do indeed want to invest, what would be your asset allocation?  Figure that out.  Perhaps for you, you'd choose different classes of investments than the normal 3 fund stuff.  Just a wild ass guess....maybe the below would work:

Total US Stock:  10%
Total US Bond:   20%
CD ladder:  50%
iBonds: Whatever you can buy up to your/spouse limit.  Say 5%
Pay off your mortgage.  Say 5%
High yield savings:  10%

This would be a wicked conservative allocation that you won't lose much of anything even if the stock market pulled another 2008.  Will your gains over time be worse than someone at 50/50 stock/bond?  Yah.  How about 60/40?  Oh yah.  That's the trade off.  There isn't a low risk 12% investment vehicle out there.  You can get your 1.25% Megamoney account at Redneck Bank (that's real, by the way) or you can put your money into Total US Stock and let it ride to perhaps gain 10% this year or perhaps lose 10% this year.

Personally, I'm retiring in 2-5 years, have a 50/50 asset allocation and have been dumping extra money into SCHB and today (right now, since the market just opened), VTI.

[Scortius]

Quick answer and what I would do is:
1) Choose your asset allocation (equities/bonds), for the equity component you want vanguard all world, and BND for your bonds
2) Lump sum and leave it to mature over multiple decades
3) Continue to add new savings as soon as you get them, rebalancing if your asset allocation swings too far from your baseline.
4) Re-invest all dividends
5) Look back in 30 years time and laugh at how you worried about such things

Do it, do it now. The market is always scary, but you just need to jump in. Scream if you have to!

I would also consider age.  The OP may not have 30 years.


Sent from my iPhone using Tapatalk

Exactly, I'm in my thirties and would like to retire in the next few years, so if the market dumps 30% in a year, that's a pretty substantial hit to the funds I'd be relying on to have some income.

Retiring in your 30s doesn't mean liquidating all your investments and living off the cash. In fact, given that you'll be using these funds for a long time, it's even more important to keep them in the market through your retirement so they're still growing when you turn 60, 70, and 80.

[PizzaSteve]

Consider this:
http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

[MrGville]

Consider this:
http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

I've always wondered about this...definitely drives home the point that if you continue to invest and don't sell out of panic, you'll be fine.

[ysette9]

https://investor.vanguard.com/investing/online-trading/invest-lump-sum

So research says that most of the time you will be better off just dumping the whole thing in the market right away. "Time in the market is more important than timing the market". If you can't stomach that, dollar cost average away, buy don't continue to sit on the sidelines. As others have said, do your homework on what you feel is a good AA for your goals and risk tolerance. For a long retirement having a good portion of your stash in stocks is really important for keeping ahead of I flatiron. I personally run simulations with cFIREsim.com to see how things like asset allocation impact my success rate. That has made me feel a lot more comfortable having a high % in stocks.

[MustacheAndaHalf]

Currently I've got most assets in cash, ...

You are not ready to retire in your 30s with your current situation.  Inflation slowly eats away your assets, and at a slightly higher rate than cash earns right now.  You will spend down your assets, and over time your assets will be able to buy less.  Make sure you have money actually in the stock market before you consider retirement, since doing it may be more difficult than you expect.

The conventional wisdom is to plan your bond allocation relative to your retirement date.  For example, Vanguard Target 2020 holds 40% bonds and 60% stocks.  That's a more conventional allocation for approaching retirement.  If the stock market corrects, you retain your assets by holding 40% bonds.  You can spend from bonds, or rebalance into stocks.

Keep in kind when you retire, you should have "enough" assets.  ("Enough" is also a good book by John Bogle).  If the market corrects while you need to keep spending, your fixed spending can eat a larger hole than expected in your nest egg.  The question to you - why would you risk your nest egg if it's already enough?  That's why people use a greater bond allocation when they retire - they have enough and need to balance preserving their nest egg (40% bonds) with keeping it growing ahead of inflation and spending (60% stocks).