Author Topic: What's the smallest amount you'd dollar-cost average?  (Read 1139 times)

Neo

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What's the smallest amount you'd dollar-cost average?
« on: February 01, 2019, 06:58:09 AM »
I'm getting my bonus soon. Hoping to net about $25k after 401(k) contribution and taxes. Would you dollar-cost average by making multiple identical investments over time, or drop it into Vanguard in one lump sum? If you'd make multiple investments, how many and over what time period?

Related question: My account is fairly new and I'm targeting 25% each of the following. I'm 34 years old FWIW. Also own 22 rental units so I've got plenty of real estate exposure. I have a healthy 401(k) full of index funds as well. Does this seem reasonable for taxable investing?

25% BND - Total Bond Market ETF
25% BNDX - Total International Bond Index ETF
25% VTI - Total Stock Market ETF
25% VXUS - Total International Stock Index Fund ETF

Thanks for the thoughts in advance!

RJC

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #1 on: February 01, 2019, 07:20:13 AM »
I believe lump sum is better 66% of the time?

radram

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #2 on: February 01, 2019, 07:25:46 AM »
I'm getting my bonus soon. Hoping to net about $25k after 401(k) contribution and taxes. Would you dollar-cost average by making multiple identical investments over time, or drop it into Vanguard in one lump sum? If you'd make multiple investments, how many and over what time period?

Related question: My account is fairly new and I'm targeting 25% each of the following. I'm 34 years old FWIW. Also own 22 rental units so I've got plenty of real estate exposure. I have a healthy 401(k) full of index funds as well. Does this seem reasonable for taxable investing?

25% BND - Total Bond Market ETF
25% BNDX - Total International Bond Index ETF
25% VTI - Total Stock Market ETF
25% VXUS - Total International Stock Index Fund ETF

Thanks for the thoughts in advance!

In general, it is better to keep bonds in tax deferred accounts, since their income is taxed at your income rate. That is often higher than your capital gains tax rate.

As far as percentages, you should use OVERALL percentages. Just looking at these, it looks like you are WAY overloaded in bonds and international, but that depends entirely on the overall amount in your 401k, and what your overall asset allocation is. Have you decided that? Do you have an Investment Policy Statement?.

I would invest the $25k all at once.

MustacheAndaHalf

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #3 on: February 01, 2019, 08:38:40 AM »
25% BND - Total Bond Market ETF
25% BNDX - Total International Bond Index ETF
25% VTI - Total Stock Market ETF
25% VXUS - Total International Stock Index Fund ETF
That's the allocation of someone who is already retired.  And even the traditional 60/40 allocation features more stocks than you have above.  It's very likely you have allocated too much to bonds, but it depends when you plan to retire and what allocation you want to have in retirement.

secondcor521

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #4 on: February 01, 2019, 08:59:38 AM »
I'm getting my bonus soon. Hoping to net about $25k after 401(k) contribution and taxes. Would you dollar-cost average by making multiple identical investments over time, or drop it into Vanguard in one lump sum? If you'd make multiple investments, how many and over what time period?

Related question: My account is fairly new and I'm targeting 25% each of the following. I'm 34 years old FWIW. Also own 22 rental units so I've got plenty of real estate exposure. I have a healthy 401(k) full of index funds as well. Does this seem reasonable for taxable investing?

25% BND - Total Bond Market ETF
25% BNDX - Total International Bond Index ETF
25% VTI - Total Stock Market ETF
25% VXUS - Total International Stock Index Fund ETF

Thanks for the thoughts in advance!

In general, it is better to keep bonds in tax deferred accounts, since their income is taxed at your income rate. That is often higher than your capital gains tax rate.

As far as percentages, you should use OVERALL percentages. Just looking at these, it looks like you are WAY overloaded in bonds and international, but that depends entirely on the overall amount in your 401k, and what your overall asset allocation is. Have you decided that? Do you have an Investment Policy Statement?.

I would invest the $25k all at once.

Totally agree with the above.  My IPS at your age was 100% stocks.  If I had to pick a US/intl allocation, it would be somewhere between 100/0 and 60/40.

RWD

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Andy R

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #6 on: February 01, 2019, 09:20:30 AM »
If your investment properties are a large percentage of your investment assets, then 50/50 in liquid assets might be ok, since it is not really 50% of your investment assets that is in fixed income. Otherwise seems overly conservative.

LittleSeedsOfWealth

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #7 on: February 01, 2019, 09:50:00 AM »
I'd do lump sum. There's plenty of research out there in favor of lump sum.
Regarding your allocation, how risk averse do you think you are? What's your time horizon? If you think you'll freak out and sell when the market tanks by 10%, a 50/50 allocation is fine. There's not a formula for everyone based on age alone.

Radagast

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #8 on: February 01, 2019, 10:07:56 AM »
I would dollar cost average if it was half of all the money I ever expected to need and I was after a high stock allocation, ie. if I received $1M and my FIRE number was $2M and my allocation was 90% stocks. $25k I would not bother, or with 50% bond target.

I'm with Andy R, I think your bond % is fine given you look to have at least $500k in real estate investments. You should check to see if there are better bond options for your tax rate: if you have a high state tax maybe a treasury fund is better, or for high federal taxes a muni fund might be better, or if both are high then a state muni fund. Nothing against international bonds, but that is also a slightly unusual choice. You might be better with some other type of bond. Or not. Hard to say.

Neo

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #9 on: February 01, 2019, 10:34:51 AM »
Wow I appreciate all the replies. I'm not gonna bother with averaging. Looks like I have some homework to do on my allocations though. Always tricky when you start considering the real estate as well.

terran

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #10 on: February 01, 2019, 01:11:07 PM »
I believe lump sum is better 66% of the time?

Yes, that's what the research says.

As such I wouldn't dollar cost average any amount. Lump sum all the way.

PDXTabs

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #11 on: February 01, 2019, 06:09:37 PM »
I'd lump sum it, unless I couldn't stomach it. For $25K I could stomach it.

MustacheAndaHalf

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #12 on: February 01, 2019, 08:21:07 PM »
There's also a halfway point between doller cost averaging and lump sum: split the investment into 2 or more chunks.  The stock market's volatility tends to be different on different days.  I think I've read a book mentioning a study explaining it: if you pick any two days and invest, you greatly diminish the chances of making both purchases at a really bad time.

So I'd say decide what is a comfortable chunk of money to invest at once, and then pick how far apart (days or weeks) you will make the investments.  If $8.3k seems okay, invest 3 chunks of $8.3k each, maybe once per week.

Trevor Reznik

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #13 on: February 02, 2019, 02:54:06 AM »
Averaging in makes perfect sense to me, if 25K feels like a lot of money to you.  It'll make you sleep better at night if the market drops after the first ~8K and you still have 2 more purchases you can make at cheaper prices.  I'm guessing you worked pretty hard for your bonus, nothing wrong at all with averaging it in to the market.

shinn497

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Re: What's the smallest amount you'd dollar-cost average?
« Reply #14 on: February 03, 2019, 02:10:18 AM »
Lump sum. Its better to have time in the market than to time the market.