Author Topic: Mustachians: Is it better to invest $100K all at once -- or in chunks?  (Read 6868 times)

greenjb

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A question for veteran Mustachians: I just liberated $100K from a fee-charging investment advisor that I now plan to invest in low-fee Vanguard funds (for anyone who's curious: 56% VTSAX, 24% VTIAX, 20% VBTLX -- I'm 44 y.o., fwiw). I am leery of investing this all at once, for fear the market will drop 10 percent the next day. So my question is, is it better to invest this money all in one chunk, knowing I'm in for the long term? Or is it preferable to space it out into two or three chunks? I suspect the true Mustachian answer is: "Invest it tomorrow and forget about it, because you can never predict the market and it'll go up over the long term." But I'm curious if there's any research to suggest a different approach? Thanks in advance for any intel. I love this forum.


retiringearly

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #2 on: September 14, 2016, 09:14:46 PM »
I will get flamed for this...but I would invest 25% of the total in the assets you mentioned tomorrow.  I would invest another 25% in 6 months.  Then another 25% six months later.  Then the last 25% six months after that.

Why?  Because we are much closer to the end of this bull market than the start of it.

JLee

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #3 on: September 14, 2016, 09:34:03 PM »
I will get flamed for this...but I would invest 25% of the total in the assets you mentioned tomorrow.  I would invest another 25% in 6 months.  Then another 25% six months later.  Then the last 25% six months after that.

Why?  Because we are much closer to the end of this bull market than the start of it.

I'd like a crystal ball too, please!

retiringearly

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #4 on: September 14, 2016, 09:54:22 PM »
Strangely, I don't have a crystal ball. 

But given the fact that this bull market is 7 years old, my guess is that we are much, much closer to the end of it than the start of it.

But since you disagree your crystal ball much be much more clear than my crystal ball is.

JLee

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #5 on: September 14, 2016, 10:05:25 PM »
Strangely, I don't have a crystal ball. 

But given the fact that this bull market is 7 years old, my guess is that we are much, much closer to the end of it than the start of it.

But since you disagree your crystal ball much be much more clear than my crystal ball is.

Where did I disagree with you?

retiringearly

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #6 on: September 14, 2016, 10:07:27 PM »
When you asked for a crystal ball.

Care to play the game?

seattlecyclone

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #7 on: September 14, 2016, 10:25:50 PM »
What does your Investment Policy Statement say about how your money should be invested? Do that. Do it now. Don't wait. Timing the market is a fool's game.

JLee

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #8 on: September 14, 2016, 10:34:38 PM »
When you asked for a crystal ball.

Care to play the game?

Except I didn't disagree with you, nor did I agree.  Neither of us can reliably predict the market.

patrickza

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #9 on: September 15, 2016, 12:02:59 AM »
All the historical information points to going all in:
https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

Now if it's wrong and you get burnt, at least you can say you followed the best evidence available, but statistically you won't be.

bearkat

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #10 on: September 15, 2016, 05:24:03 AM »
What was the money doing when you had it with the investment advisor? I'm betting that it was mostly invested in the markets. So really you're not investing a new 100k all at once, you're just changing the asset allocation and fee structure of your investments.

To do anything other than invest it all at once would be to radically change your asset allocation to very heavy cash for whatever period you decide to slow play the deployment. If you want to be heavy cash for 6 months to 2 years that is up to you, but it's completely unrelated to this money becoming free of your financial advisor.

My thought: stay fully invested and match your new desired asset allocation as soon as possible, don't delay.

Good luck.

StreetCat

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #11 on: September 15, 2016, 06:32:27 AM »
My vote would be to dollar cost average over a few years.

Everytime something like this comes up, people get into arguments over crystal balls and predicting futures.

There is a difference between future prediction and expected returns.  A simple case: If you toss an unbiased coin, can you predict whether the outcome will be heads or tails? No.  However, your inability to predict does not in anyway change the FACT that there is an expected 50% probability of heads and 50% probability of tails.

Same thing with the market.  No one can predict the market's future.  However, we can calculate the expected returns based on current valuations, and right now they are not pretty.  Is it possible that inspite of low expected returns, the markets could return 200% a year for the next 5 years?  Sure.  It's unlikely, but possible.

If I had 100k to invest today, I would not be lump sum investing.

Few questions you should answer to help this decision:
  • If you do invest 100k in lump sum today, and if the market goes down 50% in the next 2-3 years, can you live with that?  Or will you kick yourself and get into a turmoil?  If it's the former, then you have a good justification to invest in lump sum.  If it's the latter, then if you do invest in lump sum, it's likely that you'll make wrong moves (like selling at the worst possible time and losing a lot of money).
  • Is it possible that you may need to use that 100k in the next few years or can you afford to lock it up for several years?  If there is a market downturn and your portfolio goes down 50% and you want to withdraw it, it's a similar situation as above.  You'll be selling at a bad time.

I think your personality will be one of the biggest pieces of this puzzle - the investor is the weakest link in an investment.  The best strategy cannot withstand the frailties of the human mind.

piethief

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #12 on: September 15, 2016, 08:50:31 AM »
I would normally just move it all over and forget about it.  I agree that trying to time the markets is asking for trouble.

If it were my money, I would do that.  I'd probably schedule the transfer for December though after the presidential elections are over.  That's about as much into timing the market as I will ever get.

Tyson

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #13 on: September 15, 2016, 09:22:06 AM »
Dump it all in now.  If stocks go up, they go up for the full $100,000 amount.  If they don't, it doesn't matter because you'll ride out any dips over the long term.

dz1087

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #14 on: September 15, 2016, 12:12:21 PM »
I would consider that money as already invested and invest all of it ASAP!  You're merely changing management companies.

If you had no idea about Vanguard, and the market dumped 10% tomorrow, would you feel/do any different?  Would you pull all of that 100k out?  The only difference between your current situation and the one you were in before you pulled your money out is that you will now be paying a smaller fee on the money regardless of market direction.

I re-iterate -- put it all back in now and pretend you never took it out.

Fudge102

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #15 on: September 15, 2016, 12:26:03 PM »
I was in your shoes once.  Had a bunch of money and wasn't sure which way the market was going to turn so I chose to invest it over time.  And missed out on the 10% jump that happened a month later.  Big picture, you don't know which way the market will go.  You could miss out on a gain or you could save a loss.  So just throw down and invest it now.  As someone else pointed out, you're just switching from one firm to another.  The money's already in the market.  So just place it where you want and let compounding take its course.

greenjb

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #16 on: September 15, 2016, 03:12:37 PM »
What does your Investment Policy Statement say about how your money should be invested? Do that. Do it now. Don't wait. Timing the market is a fool's game.

I don't know what an Investor Policy Statement is -- I'm pretty new. Can you point me to a link? Interested to read. FYI, after reading that Vanguard paper I went all in. The market fell a bit between the time I cashed out and went back in, so I can tell myself I'm already ahead :)

Retire-Canada

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #17 on: September 15, 2016, 04:17:51 PM »
A question for veteran Mustachians: I just liberated $100K from a fee-charging investment advisor that I now plan to invest in low-fee Vanguard funds (for anyone who's curious: 56% VTSAX, 24% VTIAX, 20% VBTLX -- I'm 44 y.o., fwiw). I am leery of investing this all at once, for fear the market will drop 10 percent the next day. So my question is, is it better to invest this money all in one chunk, knowing I'm in for the long term? Or is it preferable to space it out into two or three chunks? I suspect the true Mustachian answer is: "Invest it tomorrow and forget about it, because you can never predict the market and it'll go up over the long term." But I'm curious if there's any research to suggest a different approach? Thanks in advance for any intel. I love this forum.

I had double that amount to invest early this year. I put it into my investments according to my AA and stopped thinking about it. Yes the market could drop 10% the next day or it could go up 10% the next day. Who knows what's going to happen and if you are investing with a decades long time horizon who cares???

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

As it turns out that was a good move as all my ETFs are now higher than at that time and I received a bunch of dividends as well.

mcsneeker

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #18 on: September 15, 2016, 06:10:08 PM »
What was the money doing when you had it with the investment advisor? I'm betting that it was mostly invested in the markets. So really you're not investing a new 100k all at once, you're just changing the asset allocation and fee structure of your investments.

To do anything other than invest it all at once would be to radically change your asset allocation to very heavy cash for whatever period you decide to slow play the deployment. If you want to be heavy cash for 6 months to 2 years that is up to you, but it's completely unrelated to this money becoming free of your financial advisor.

My thought: stay fully invested and match your new desired asset allocation as soon as possible, don't delay.

Good luck.

(My First Post!) I agree with bearcat, if you have $100K in the markets yesterday and $100k in the markets tomorrow, there is no conversation about dollar cost averaging.  I've had the same emotional reaction you are having because there is a day in the middle when you have cash in your hands, but don't let the act of moving the money cause you to rethink your investing strategy. If you were rolling over $100K from a previous employer's 401k, would you invest that in Cash in your new 401k or would you allocate it fully into your new funds?

seattlecyclone

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #19 on: September 15, 2016, 06:15:37 PM »
What does your Investment Policy Statement say about how your money should be invested? Do that. Do it now. Don't wait. Timing the market is a fool's game.

I don't know what an Investor Policy Statement is -- I'm pretty new. Can you point me to a link? Interested to read. FYI, after reading that Vanguard paper I went all in. The market fell a bit between the time I cashed out and went back in, so I can tell myself I'm already ahead :)

There's a whole page about them at https://www.bogleheads.org/wiki/Investment_policy_statement, but in a nutshell it's a concrete statement about what your investment plans are. What accounts do you invest in? Within each account, how much should be stocks, bonds, US, international? It doesn't need to be this big, complex document. The point is to write your intentions down, which makes it easier to stay the course if you have concerns about future market performance.

ender

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #20 on: September 15, 2016, 06:18:28 PM »
It depends on your risk tolerance.

Mathematically from a historical perspective, you are likely better off all today. Emotionally, if you are not better off, it will likely feel pretty frustrating. Likewise, if the market goes up meaningfully while you wait to chunk it in, you will feel frustrated.

Only you know where you fall on that spectrum. Some people are fine with the idea of dumping $100k in, seeing it lose 20% in the next week. Some are not. There's nothing wrong with either position, so long as you invest accordingly and understand the tradeoffs.

retiringearly

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #21 on: September 15, 2016, 10:15:29 PM »
When you asked for a crystal ball.

Care to play the game?

Except I didn't disagree with you, nor did I agree.  Neither of us can reliably predict the market.

Yeah, sure.  Whatever you say.

At least I am honest.  Unlike you.


[Mod Note:  Please refrain from personal insults.  This is not warranted by anything that has gone so far in this discussion]
« Last Edit: September 26, 2016, 07:16:56 AM by FrugalToque »

JLee

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #22 on: September 15, 2016, 10:23:54 PM »
When you asked for a crystal ball.

Care to play the game?

Except I didn't disagree with you, nor did I agree.  Neither of us can reliably predict the market.

Yeah, sure.  Whatever you say.

At least I am honest.  Unlike you.

Ad hominem.

Please consider that breaking forum rules may not be your best option here.

It depends on your risk tolerance.

Mathematically from a historical perspective, you are likely better off all today. Emotionally, if you are not better off, it will likely feel pretty frustrating. Likewise, if the market goes up meaningfully while you wait to chunk it in, you will feel frustrated.

Only you know where you fall on that spectrum. Some people are fine with the idea of dumping $100k in, seeing it lose 20% in the next week. Some are not. There's nothing wrong with either position, so long as you invest accordingly and understand the tradeoffs.

In this case, the $100k was already in the market - holding off on putting it back would be more like pulling $100k of index funds now, and then gradually reintroducing it to the market.  Doesn't make a whole lot of sense to me, especially considering the math is far in favor of lump sum.

v8rx7guy

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #23 on: September 15, 2016, 10:51:32 PM »
It was all invested until you pulled it... why not just reinvest it all at once just like it was had you not pulled it?

NorCal

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #24 on: September 15, 2016, 11:23:48 PM »
Math will tell you to invest it all at once.  Psychology will tell you to Dollar-Cost Average.

I'll take a contrary view that both options are wrong.

If you're hesitating on investing because you're worried about a downturn, that is clue #1 that your asset allocation is riskier than you're actually comfortable with.  You should dial back your equity exposure until this is something you're not worried about.

Take whatever equity exposure you have, and imagine you lose 50% of that over 12 months.  Try that experiment with 60/40 portfolios, 70/30 portfolios, etc. until you find an asset allocation that doesn't keep you up at night.

CanuckExpat

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #25 on: September 16, 2016, 02:09:29 AM »
What does your Investment Policy Statement say about how your money should be invested? Do that. Do it now. Don't wait. Timing the market is a fool's game.

I don't know what an Investor Policy Statement is -- I'm pretty new. Can you point me to a link? Interested to read. FYI, after reading that Vanguard paper I went all in. The market fell a bit between the time I cashed out and went back in, so I can tell myself I'm already ahead :)

Congratulations. You made a decisions and you will stick to it. Don't worry about it now. In 10 years, it won't matter :)

Scandium

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #26 on: September 16, 2016, 09:00:38 AM »
Strangely, I don't have a crystal ball. 

But given the fact that this bull market is 7 years old, my guess is that we are much, much closer to the end of it than the start of it.

But since you disagree your crystal ball much be much more clear than my crystal ball is.

What if we're 1 year and 1 day from the end of the bull market? Then they would also have missed out on the gains up to the crash! Why DCA over 1 year? Why not 2, or 5 or 10..?

Scandium

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #27 on: September 16, 2016, 11:23:08 AM »
What if we're 1 year and 1 day from the end of the bull market? Then they would also have missed out on the gains up to the crash! Why DCA over 1 year? Why not 2, or 5 or 10..?

10 years is too long because your money will be sitting around with a lot of drag.  Investing now or one year from now is kind of a push--we're talking about a handful of dimes.  If it makes you feel better to DCA over a year that doesn't seem like a big sin to me.  I wouldn't do an index fund though.  Instead spread it out between publicly traded crystal ball makers, tarot readers, and algorithmic traders.  Do they still make crystal balls in america or has that been outsourced?  You might need to go foreign.  Statistically it makes sense to invest now because the market often goes up.  But what happens in real life is not statistics but a particular instance that could go one way or the other.  You have to ask yourself--do you feel lucky, punk.  well, do you?
OP talked about &$100k, so one year could mean $7,000 lost, on average. Hardly dimes to me..

Just meant to say that 1 year is very arbitrary, and hardly likely to be any better than waiting 428 days, or some other random number.

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robartsd

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #28 on: September 16, 2016, 12:06:37 PM »
While I might not invest it all in one transaction, I would not hold any of it as cash for longer than a few months. I might break it into 4-10 transactions and space the transactions over a short time period to reduce volatility risk without significant time lost in the market.

Scandium

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #29 on: September 16, 2016, 02:24:17 PM »
But there's no guarantee DCA will buy you anything. The market could just as likely drop the day after your last investment. Then you've lost out double.

I wouldn't call it a sin, just illogical

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Retire-Canada

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #30 on: September 22, 2016, 06:49:15 PM »
But there's no guarantee DCA will buy you anything. The market could just as likely drop the day after your last investment. Then you've lost out double.

I wouldn't call it a sin, just illogical

It's called a fear tax.

Scandium

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #31 on: September 22, 2016, 08:31:59 PM »
But there's no guarantee DCA will buy you anything. The market could just as likely drop the day after your last investment. Then you've lost out double.

I wouldn't call it a sin, just illogical

It's called a fear tax.
But does it work? If I'm waiting to invest and the market goes up 1% I'll be thinking of what I just lost out on. If I'm invested and it goes down 1% it's the same (close enough). So no difference! And that's assuming 50-50 up/down

Retire-Canada

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #32 on: September 22, 2016, 08:34:44 PM »
But does it work? If I'm waiting to invest and the market goes up 1% I'll be thinking of what I just lost out on. If I'm invested and it goes down 1% it's the same (close enough). So no difference! And that's assuming 50-50 up/down

We are only investing in the market because we think the chances of it going up are better than 50/50.

http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
« Last Edit: September 22, 2016, 10:01:43 PM by Retire-Canada »

Scandium

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #33 on: September 23, 2016, 04:19:59 AM »
But does it work? If I'm waiting to invest and the market goes up 1% I'll be thinking of what I just lost out on. If I'm invested and it goes down 1% it's the same (close enough). So no difference! And that's assuming 50-50 up/down

We are only investing in the market because we think the chances of it going up are better than 50/50.

http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
Yeah that was my point. Any chance of market rise above 50% it's clearly better to invest now.

DCA is market timing. You're saying you think the market is more than 50% likely to go down over the period of your DCA. That's pretty bold. Yes it could drop 20-30% or more, but it could also go up 20-30%. Remember 2013?

robartsd

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #34 on: September 23, 2016, 08:24:09 AM »
In my view the primary reason to preach DCA over long periods of time is to encourage people to invest regularly (investing $100 every month is better than investing $1200 at the end of the year). I also see some benefit to short term DCA (perhaps as short as 1 transaction/day over a week, or as long as 1 transaction/week over a couple of months) when you have unusually large (for you) investments to make at a particular time so that you buy at closer to the average price in that period.

jjandjab

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #35 on: September 23, 2016, 09:32:52 AM »
In my view the primary reason to preach DCA over long periods of time is to encourage people to invest regularly (investing $100 every month is better than investing $1200 at the end of the year). I also see some benefit to short term DCA (perhaps as short as 1 transaction/day over a week, or as long as 1 transaction/week over a couple of months) when you have unusually large (for you) investments to make at a particular time so that you buy at closer to the average price in that period.

I agree with this for new large sums of money that were not previously invested (I have trouble jumping in all at once, even though I know it hasn't been proven to be any better), but in the case of the OP, who was completely invested already and simply switching to Vanguard, it really should go go all in, and happy they did.

robartsd

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #36 on: September 23, 2016, 11:04:36 AM »
I also see some benefit to short term DCA (perhaps as short as 1 transaction/day over a week, or as long as 1 transaction/week over a couple of months) when you have unusually large (for you) investments to make at a particular time so that you buy at closer to the average price in that period.

I agree with this for new large sums of money that were not previously invested (I have trouble jumping in all at once, even though I know it hasn't been proven to be any better), but in the case of the OP, who was completely invested already and simply switching to Vanguard, it really should go go all in, and happy they did.
When transferring funds between brokerages (where directly transferring holdings is not available) I could see breaking both the sale and the purchase into multiple transactions spread out over a few days to reduce exposure to short term volatility on both sides of the transaction. This is all theory for me, as I started my investing at Vanguard and do not anticipate investing elsewhere.

Tyson

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #37 on: September 23, 2016, 11:58:48 AM »
Time in the market beats market timing.

From a peace of mind standpoint, I just say dump it in there and forget it.  DCA'ing just gives you one more thing to worry about every month. 

greenjb

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #38 on: September 24, 2016, 03:48:27 PM »
For the record, I put it all in -- and it's up to $101,200!

gimp

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #39 on: September 26, 2016, 12:25:27 AM »
The biggest problem with $100k saves is that you see day to day variation of hundreds, sometimes over a thousand bucks. It means you can't watch it or you go crazy!

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #40 on: September 26, 2016, 01:23:28 AM »
For the record, I put it all in -- and it's up to $101,200!

Great!

Leisured

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #41 on: September 26, 2016, 06:50:58 AM »
Agree with tyort1 and CanuckExpat. Put it all in. Thanks to CanuckExpat for the link 'the world's worst market timer'.

I am old enough to remember the 1987 crash. I live in Oz and bought Aussie stocks for years, but stopped buying about 1985 when dividend yields became too low,and PE ratios became too high. I rode out the 1987 crash, sold nothing, and within 5 or 6 years things were back to nearly normal.


Retire-Canada

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Re: Mustachians: Is it better to invest $100K all at once -- or in chunks?
« Reply #42 on: September 26, 2016, 09:34:03 AM »
For the record, I put it all in -- and it's up to $101,200!

Boom! Nice that's the No-FEAR-bonus = $1.2K. ;)