What to do? Dollar Cost Averaging vs. Putting All Bond Fund Income into VTI

[boston swiss]

Hi All,

I'm coming to a decision point as to how to invest approximately 265k that has been in a stable interest income fund with the following strategy:
Strategy:

The Interest Income Fund, through its Investment Advisor, invests in a diversified portfolio of stable value investments which seek to offer price stability and liquidity. These investments are diversified across various sectors, which include stable value collective investment trusts, wrapped fixed-income investments, and traditional Guaranteed Investment Contracts (GICs) issued by major insurance companies. The wrapped fixed-income investments consist of wrap agreements and fixed-income portfolios either managed to a target duration or more actively managed in response to prevailing market conditions. Duration represents the interest rate sensitivity of the underlying portfolio to changes in interest rates. Securities in these portfolios include both AAA and below AAA-rated securities across fixed-income sectors such as treasuries, mortgage-backed securities (both residential and commercial), asset-backed securities, and corporates. The wrap agreements are intended to smooth out the investment returns of the fixed-income securities. These investments provide a fixed rate of return for a specific time period. The returns for the various investments that make up the Interest Income Fund are blended together to provide participants with an aggregate return net of all fund-related expenses. Unit return will vary.

The return has been:

1 yr - 1.74%

3 yr - 1.64%

5 yr - 1.95%

10 yr - 2.95%

I've been in this account since 2012 or so, and no question I would have done better by being in an index fund like VTI.  However, a large portion of my NW of approx. 1.5 Million was invested in real estate investments that helped me pay off two mortgages on two homes that generate about 72k (pre-tax and expenses) per year.

Now that I have this income coming in, I was thinking of putting the 401k funds to better use.

Here's the question - what would you do - dollar cost average the 265k into a fund like VTI (and if so, how much per month) or go all in with the 265k into a fund like VTI today and then dollar cost average with my remaining funds (about 2k per month is investable at the moment per month)?

Thanks - let me know if you need more info?

[stashgrower]

Perhaps this report on DCA from Vanguard might help?

https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

[nereo]

I agree with stashgrower - lump sump investing beats DCA most of the time (and you cannot know when DCA would come out ahead, because it means knowing what the market will do over the DCA period).  Personally, i would lump sum invest it and be done with it.

BUT - I would read this (a case for lump sum investing):
http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/

and then watch this (which talks about the emotional threshold for lump sum vs DCA investing):
http://www.mikeandlauren.com/what-is-your-emotional-threshold-when-investing/

[Heckler]

Another article on the challenges of switching your asset allocation so drastically. 

http://canadiancouchpotato.com/2015/08/24/is-a-pullback-really-a-buying-opportunity/

[boston swiss]

Thanks all.  It's all laid out pretty well in the posts you've all contributed to this thread.  I think the emotional tolerance for investing a lump sum is relevant in my case.  I checked my Fidelity options and it looks like my ability to buy into the funds I would like (i.e. 3 fund portfolio):

Fidelity Spartan Total Market Index Fund Investor Class (FSTMX) or Advantage Class (FSTVX)
Fidelity Spartan Global ex U.S. Index Fund Investor Class (FSGUX) or Advantage Class (FSGDX)
Fidelity Spartan U. S. Bond Index Fund Investor Class (FBIDX) or Advantage Class (FSITX)

are not available through my company's plan.  There are 19 options available through the company plan.  Not sure if there is a way to rollover these funds without leaving the company....otherwise this will be a challenge due to the restrictions.

[James]

Thanks all.  It's all laid out pretty well in the posts you've all contributed to this thread.  I think the emotional tolerance for investing a lump sum is relevant in my case.  I checked my Fidelity options and it looks like my ability to buy into the funds I would like (i.e. 3 fund portfolio):

Fidelity Spartan Total Market Index Fund Investor Class (FSTMX) or Advantage Class (FSTVX)
Fidelity Spartan Global ex U.S. Index Fund Investor Class (FSGUX) or Advantage Class (FSGDX)
Fidelity Spartan U. S. Bond Index Fund Investor Class (FBIDX) or Advantage Class (FSITX)

are not available through my company's plan.  There are 19 options available through the company plan.  Not sure if there is a way to rollover these funds without leaving the company....otherwise this will be a challenge due to the restrictions.

Pretty easy to find out if you can rollover, just need to ask. Some do some don't, doesn't hurt to check.


I assume there is a low cost index fund in the list of 19, I would post what options you do have if you can't rollover to Vanguard.


Lump sum is my method, but it's really a personal decision like you indicated. Pick your poison, the math may say lump sum, but absolutely nothing wrong with dca over some relatively short term, key is to get that process started asap.

[patrickza]

I just did a blog post on dollar cost averaging: http://investorchallenge.co.za/should-you-be-dollar-cost-averaging/

The outcome of my research was pretty clear, lump sum wins two thirds of the time, and on average, the faster you get into the market the better. I'd play with the odds and go all in.