Author Topic: What to do (cash on the sidelines)  (Read 3892 times)

FIRE47

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What to do (cash on the sidelines)
« on: August 08, 2015, 05:54:20 AM »
Brief case facts (not doing a whole case study as my question has more to do with a single investment question but I will include some details that might be pertinent, leaving out info about DW and her figures in all parts of this as our finances are still mostly separate, we have the same long-term goals just they are running in parallel atm):

Basically through not following my own plans of investing regularly, switching jobs a few weeks back and receiving all of my vacation and OT pay, and now cleaning up some random investments I had no business owning I have accumulated 25k+ cash on the sidelines (note this does not include emergency cash, downpayment savings and so on, this is purely portfolio cash).

Given the run up in stocks and bonds lately I am worried about investing it as a lump sum and indeed I have never had to pull the trigger on anywhere near this much money at once. This is over 15% of my entire NW at this time and around 25% of my portfolio, but I know I have to get my act in gear and invest this money at some point as well and stop accumulating so much cash.

Part of the reason is due to the stress this is causing me not having had a concrete plan in place when the market falls.
I have been beat up a bit lately having made some commodity bets and stock picks (yes give me a face punch) and my risk tolerance feels like it has dropped off a cliff due to this roller coaster, but perhaps with a real plan in place I can get over this.

I know what I am going to do going forward, the question is what do I do with the lump sum now? Invest it all at once, add it to my monthly contributions going forward?

Case facts:

26 YO
FIRE Date: ~15 years
Risk tolerance: See above
Income after deductions: 3600 + 5-10k OT spread throughout year
Savings: (about 2.5k per month excluding pension, OT,  and 1 time items)
Pension contributions: 508 per month including my portion and match (going to a balanced fund - not much choice here)
Debt: None - Car paid in full
Future prospects: I am in an industry where my pay should be rising at 10-15% per year for the next 5 years or so before either plateauing to 2-3% or exploding depending on being a top performer and retirements.

« Last Edit: August 08, 2015, 05:55:56 AM by FIRE47 »

Pooplips

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Re: What to do (cash on the sidelines)
« Reply #1 on: August 08, 2015, 06:20:10 AM »
It may be a large portion of your NW today but based on your write-up it sounds like your earning/savings potential is huge.

I would lump sum invest but given your risk tolerance, just DCA over the rest of the year.

forummm

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Re: What to do (cash on the sidelines)
« Reply #2 on: August 08, 2015, 06:40:18 AM »
You should be maxing out your IRA ($5500) and 401k ($18k) each year (if you have a 401k at work).

Put the cash in the market and leave it there for 15 years until you FIRE. Don't look at the balance, just leave it there. Opening an account at Vanguard and putting it in VTSAX is a great choice. In 15 years you'll have a lot more money, even if the market crashes a couple times between now and then.

Dexterous

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Re: What to do (cash on the sidelines)
« Reply #3 on: August 09, 2015, 10:09:41 AM »
I agree with all of forummm's advice.

I'd invest the cash all at once, and focus on shares owned + future savings rate, not the balance.  If you can't stomach putting in all the cash at once, then save a few thousand for your IRA next year.  Max it in January.

fb132

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Re: What to do (cash on the sidelines)
« Reply #4 on: August 09, 2015, 11:28:28 AM »
I would invest all at once and not look at the market. Invest in vanguard like the others have been saying. You should try to do everything in your powers not to hear the news especially the ones that talk daily about what's going on in the stock market. If you hear the good and the bad on the stock market, your gonna panic and sell your stuff which is the worst thing you can do. Just invest, block all noises and live your life. Don't worry about stuff that's out of your reach, just live your life, enjoy it, invest...and then after a few years, when it's time to withdraw your money, then you will be pleasantly surprised how big your investments have become.

bortman

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Re: What to do (cash on the sidelines)
« Reply #5 on: August 09, 2015, 06:03:43 PM »
Certainly not trying to hijack the thread, just thought my experience is relevant to the discussion. After combing the formus the forum on lump-sum vs DCA, I jumped in and put $30k in a Vanguard account.

I thought I would offer my limited experience to show that lump-sum can cause some initial hair loss, and ask for a little reassurance and/or advice. Here's my experience:

5/1/2015
opened Vangaurd account:
VBTLX   $10,000
VTSAX   $20,000

7/1/2015
began DCA auto-investing a total of $375 / week (on Wednesdays), divided like this:
VBTLX   $18.75
VTSAX   $356.25
at this rate, after a year of auto-investing the account will be approximately 80/20 VTSAX/VBTLX

8/5/2015
total invested to-date (including dividends):   $32,249.98
total assets to-date:                  $31,993.67
difference:                        -$256.31

I've lost ~$400 in market value. The ~$150 in dividends have bolstered things, but I'm in the red at this point. My wife has been supportive, especially after it took some convincing to get her on board with the Vanguard account, but I'm feeling pretty crumby about loosing money.

Other details:
I'm 43, wife is 38. I max out a 457B, and put some into a 403B. She's maxing her 403B, considering options on 457B. Combined we have ~450k in these retirement savings. Our only debt is our mortgage. BTW, both my 457B and 403B have taken a hit too, but I'm more accustomed to ignoring these fluctuations. Since the Vanguard stuff is new to me it's a little more nerve-racking.

Thoughts? I still feel like I'm on the right track, but it sure is tough to stay the course.

fb132

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Re: What to do (cash on the sidelines)
« Reply #6 on: August 09, 2015, 06:38:09 PM »
You just started investing in may, it's pretty normal that you may have lost money since then, the market in general was was down in June and July because of Greece and China. You have to stop looking at your investment or else you are going to panic when things aren't rosy. What happened in June and July is nothing compared to what I went through in 2008 when the market tanked. But I continued to invest regardless how bad it went and today my investments are way up because of that. You should do the same, invest and don't look.
« Last Edit: August 09, 2015, 06:40:02 PM by fb132 »

SuperSecretName

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Re: What to do (cash on the sidelines)
« Reply #7 on: August 09, 2015, 07:04:19 PM »
It's tough emotionally and often that rules over logic. 

So compromise.  Dump half in right now and dollar cost average inthe rest over the next year.

samuck

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Re: What to do (cash on the sidelines)
« Reply #8 on: August 10, 2015, 02:17:28 AM »
I've lost ~$400 in market value. The ~$150 in dividends have bolstered things, but I'm in the red at this point. My wife has been supportive, especially after it took some convincing to get her on board with the Vanguard account, but I'm feeling pretty crumby about loosing money.

Thoughts? I still feel like I'm on the right track, but it sure is tough to stay the course.

Hi bortman, if you call the loss of roughly 1% as "nerve-racking", you should reconsider your strategy and possibly pull out if equities altogether. Ups and downs will happen, and much more substantial ones than the one you've experienced.

BicycleB

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Re: What to do (cash on the sidelines)
« Reply #9 on: August 10, 2015, 08:55:49 AM »
Samuck's comment is probably wise in that emotions drive real behavior.  But successful investing requires being invested, as well as waiting for long term returns.

The thing about equity investing is the patience pays, while looking frequently at results leads a normal person into mistakes.  You have to act based on the timeframe that is logical for your life.  If this is money that is intended for retirement, early retirement or some other purpose that is at least 10 to 15 years in the future, the key is to invest now and hold all the way until the time when the money is to be used.

As others point out, stocks vary wildly day to day, month to month, year to year.  Only the long term results (10 years at a time, for example) count for long term purposes.  If you want to look at your results, look at your 10-year returns daily... starting 10 years from now.

If you can't do that, Samuck is your friend.  The only thing worse than losing 10% according to current prices is to lock in the loss by actually selling, then see the market rebound.  That's what you do if losses worry you and you watch daily moves. 

I have a family member who bought Apple around $40 back in the late 1990s or so, watched it drop to maybe $12 and wanted to sell but couldn't pull the trigger, decided to "sell if it ever gets to $40 again."  He did sell when it got to $40 or so...  and thereby avoided over $250,000 in gains since then.

PaulMaxime

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Re: What to do (cash on the sidelines)
« Reply #10 on: August 10, 2015, 09:04:50 AM »
I want to encourage you to not get upset about a $400 drop in your portfolio. One reason that stocks return more than other asset classes is that they are volatile. This means that they fluctuate and they do so in gut wrenching ways. If you can't handle a small fluctuation in the price of your investments over a short time, what are you going to do when it's down many thousands of dollars for months.

The market always recovers. ALWAYS. All past downturns look like opportunities in hindsight. All future ones seem scary and threatening. You must emotionally get used to this roller coaster or you should never invest in stocks.

Market downturns happen all the time. All the time. It's how you behave at these times that determines how you will do as an investor more than almost anything else.

If you can't handle it, and it sounds like you can't, don't look at your account. Hide the password, don't open the statements. Force yourself to behave correctly.

Eric

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Re: What to do (cash on the sidelines)
« Reply #11 on: August 10, 2015, 12:28:36 PM »
Do you think that the market will be higher in 15 years than it is now?  If so, then you should invest all of your cash yesterday.

Part of the reason is due to the stress this is causing me not having had a concrete plan in place when the market falls.
I have been beat up a bit lately having made some commodity bets and stock picks (yes give me a face punch) and my risk tolerance feels like it has dropped off a cliff due to this roller coaster, but perhaps with a real plan in place I can get over this.

But stop doing stupid shit like this.  You want a plan?  Here's your plan:

Step 1: Pick your desired asset allocation.  I'd recommend something like the Lazy Portfolio, but whatever you decide, stick with it.
Step 2: Invest your money ASAP
Step 3: Stop looking at your balance and go live your life

That's it.  That's the plan.  Notice that it doesn't have a line for how the market is doing in the short term.

bortman

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Re: What to do (cash on the sidelines)
« Reply #12 on: August 10, 2015, 12:46:15 PM »
@ samuck: I probably overdid it by using nerve-racking. I guess I was trying to illustrate that it can be discouraging to see losses so early in the process. It would be nice to have a bit of a win before losing.

@ PaulMaxime: I think I can handle the fluctuations. I do so with my 403b and 457b. Maybe it's just my nature, but I also checked on those accounts more often when I first opened them. I'm sure I'll peek less frequently on my Vanguard account as time passes. If I don't then I'll know that equities aren't for me.

Thanks for the input and encouragement!

PaulMaxime

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Re: What to do (cash on the sidelines)
« Reply #13 on: August 10, 2015, 01:03:50 PM »

@ PaulMaxime: I think I can handle the fluctuations. I do so with my 403b and 457b. Maybe it's just my nature, but I also checked on those accounts more often when I first opened them. I'm sure I'll peek less frequently on my Vanguard account as time passes. If I don't then I'll know that equities aren't for me.

Thanks for the input and encouragement!

Heh. For a long time I thought I was cursed. It was guaranteed that whenever I invested the market would immediately drop. No matter, in the long run it's turned out fine.

I sold a house in Sept 2007 and immediately put the proceeds (on the order of 140K) to work in the market. Oops. Look at a chart and see that that was pretty much the top before the financial crisis. Today, that money has done quite well, thank you.

But I definitely had the worst possible timing.


mrpercentage

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Re: What to do (cash on the sidelines)
« Reply #14 on: August 11, 2015, 01:37:57 AM »
Cash is King. No hurry, Mr Matket will be there  tomorrow. The Yuan just dropped 2%. The Dollar is strong and climbing.

If it stresses you out just sleep on it. When it comes to cash don't go out of your comfort zone. If stuff goes south you will be selling when you shouldn't. I just sold some investments because of my concern with the market. However, I did not sell the investments I am confident will do well in the next few years. That made me realize that I shouldn't be in things I will sell with a market concern.

You never have to sell cash