Author Topic: What to do with large cash lump sum?  (Read 2544 times)

pdxbator

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What to do with large cash lump sum?
« on: April 07, 2018, 03:31:56 PM »
So now with the tarrif issues being raised and all that, I'm wondering what to do with about 100k I got from inheritance as cash.

I know the rule of thumb is "Never Time the Markets" but I don't know if I should dump more into my Vanguard. I'm a 3 fund person with bonds, Total Stock, and International divided up. Should I just hold on to the cash for a while and see where things are in a few months? I'd typically just buy more funds but am very confused by all the chaos.

bwall

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Re: What to do with large cash lump sum?
« Reply #1 on: April 07, 2018, 03:41:32 PM »
There's good news and bad news.

Good news: You have a high quality problem.

Bad news: No matter what you do, in retrospect it may appear to be sub-optimal.

In general, there are two trains of thought: 1) all at once or 2) buy slowly in increments over the next X months.

Both can be right, or wrong, depending on what happens in the next months, which is of course today unknowable. Chose whatever strategy helps you sleep best and night. Then, sleep well and don't look back.

Bracken_Joy

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Re: What to do with large cash lump sum?
« Reply #2 on: April 07, 2018, 04:49:01 PM »
Have you seen the investing order? https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153 You've been around long enough, I'm sure you have, just be sure you fill relevant buckets and pay off debt of appropriate interest levels first, before after tax investing =)

maizeman

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Re: What to do with large cash lump sum?
« Reply #3 on: April 07, 2018, 05:02:07 PM »
Bad news: No matter what you do, in retrospect it may appear to be sub-optimal.

In general, there are two trains of thought: 1) all at once or 2) buy slowly in increments over the next X months.

Yup.

#1 will produce the best average outcomes. #2 will produce the least-bad "worst case" outcomes.

Decide which is most important to you, and move forward with one or the other as fast as you can. The longer you let that cash sit in your account the harder it'll be to finally pull the trigger on putting it into the market.

Rob_bob

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Re: What to do with large cash lump sum?
« Reply #4 on: April 07, 2018, 05:02:42 PM »
Do you have some amount of cash in your portfolio to take advantage of market corrections or crashes, or are you an invest from each paycheck kind of person?

If you have an allocation of dry powder then just invest the money in your current holdings either lump sum or dollar cost average, whichever gives you the better peace of mind.  If you invest paycheck to paycheck then set aside some % as dry powder and invest the rest.

MustacheAndaHalf

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Re: What to do with large cash lump sum?
« Reply #5 on: April 07, 2018, 09:35:05 PM »
There's a slightly more flexible approach as well: what fraction of the $100k are you willing to invest all at once?  Divide the 100k into chunks and invest them every few days, weeks, or every month.

You may be worried if the markets will drop or not.  But you need this experience either way - this won't be your only correction, and you're not going to consistently avoid them.  So you may or may not be able to experience your first correction of many, but it's time to start.
« Last Edit: April 07, 2018, 09:37:12 PM by MustacheAndaHalf »

Radagast

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Re: What to do with large cash lump sum?
« Reply #6 on: April 07, 2018, 11:18:45 PM »
A three fund portfolio is already diverse and the odds of taking a serious hit are smaller. That favors a lump sum especially as this is not that big a portion of all you will ever invest.

On the other hand if you dollar cost average in by buying back to your target allocation each time, the diverse allocation will give you a small extra tendency to buy low. But it will take more time and increase the chances of personal stupidty, which is worse than anything the market might do. So as almost always I recommend lump sum.

SwordGuy

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Re: What to do with large cash lump sum?
« Reply #7 on: April 07, 2018, 11:24:03 PM »
A three fund portfolio is already diverse and the odds of taking a serious hit are smaller. That favors a lump sum especially as this is not that big a portion of all you will ever invest.

On the other hand if you dollar cost average in by buying back to your target allocation each time, the diverse allocation will give you a small extra tendency to buy low. But it will take more time and increase the chances of personal stupidty, which is worse than anything the market might do. So as almost always I recommend lump sum.

Yep, never, ever underestimate the power of sloth and stupidity in human affairs.   Advice to live by!

ender

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Re: What to do with large cash lump sum?
« Reply #8 on: April 08, 2018, 07:46:32 AM »
What does your IPS say? Or what is your plan for money?

Our plan, while not written down anywhere officially is:

  • HSA
  • Pretax 401k/403b
  • Roth IRA
  • Mortgage fund

So for us, we'd just work down the list with that $100k until each category is filled.

stephen902

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Re: What to do with large cash lump sum?
« Reply #9 on: April 08, 2018, 12:13:51 PM »
The question taken another way is: do I believe in dollar cost averaging. Personally if it was more than 50% of my invested capital I would probably dump a 1/4 in, get a CD ladder at 6-9-12 months and dump each in as they mature. if it was a small amount of my portfolio I'd just dump it in and hope I'm not at the top.

SwitchActiveDWG

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Re: What to do with large cash lump sum?
« Reply #10 on: April 08, 2018, 07:50:10 PM »
What does your IPS say? Or what is your plan for money?

Our plan, while not written down anywhere officially is:

  • HSA
  • Pretax 401k/403b
  • Roth IRA
  • Mortgage fund

So for us, we'd just work down the list with that $100k until each category is filled.

This is how I would approach it.

JLee

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Re: What to do with large cash lump sum?
« Reply #11 on: April 08, 2018, 07:58:23 PM »
The question taken another way is: do I believe in dollar cost averaging. Personally if it was more than 50% of my invested capital I would probably dump a 1/4 in, get a CD ladder at 6-9-12 months and dump each in as they mature. if it was a small amount of my portfolio I'd just dump it in and hope I'm not at the top.

Even if you are at the top and the market crashes, it'll go back up again.

If it doesn't, we all have bigger problems.

frugal_c

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Re: What to do with large cash lump sum?
« Reply #12 on: April 09, 2018, 08:39:55 AM »
The question taken another way is: do I believe in dollar cost averaging. Personally if it was more than 50% of my invested capital I would probably dump a 1/4 in, get a CD ladder at 6-9-12 months and dump each in as they mature. if it was a small amount of my portfolio I'd just dump it in and hope I'm not at the top.

I agree.  The theoretically correct answer is to lump sum the whole thing but if you are new to markets I would dollar cost average.  If it is a huge investment sum, say 10 years or more of what you could save, I would even dollar cost average across 2 years.  Yes, you will often lose out with this method but the stock market is close to all time highs (yes I know it's came back but it's still very high).


JLee

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Re: What to do with large cash lump sum?
« Reply #13 on: April 09, 2018, 08:54:52 AM »
The question taken another way is: do I believe in dollar cost averaging. Personally if it was more than 50% of my invested capital I would probably dump a 1/4 in, get a CD ladder at 6-9-12 months and dump each in as they mature. if it was a small amount of my portfolio I'd just dump it in and hope I'm not at the top.

I agree.  The theoretically correct answer is to lump sum the whole thing but if you are new to markets I would dollar cost average.  If it is a huge investment sum, say 10 years or more of what you could save, I would even dollar cost average across 2 years.  Yes, you will often lose out with this method but the stock market is close to all time highs (yes I know it's came back but it's still very high).

If the market was not often at all time highs, it would not be going up, therefore investing would be pointless.

diffusate

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Re: What to do with large cash lump sum?
« Reply #14 on: April 09, 2018, 10:36:16 AM »
I just dealt with this myself, but in my case it was $450k from a house sale, which represents almost half my net worth. I'm feeling pretty good about what I did: 1/3 went in immediately, and the remaining 2/3 is split into 12 weekly contributions. All going to 3 fund vanguard portfolio.

Possibly slightly less optimal than a single lump sum (although I haven't seen analysis of DCA vs lump sum at a high CAPE). What it has done is make me feel good and not worry to much about the market on a day to day basis. Things go down a bit, I'm feeling good for not doing the lump sum. Things go up a bit, I'm feeling good that I put in a significant chunk up front.

Car Jack

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Re: What to do with large cash lump sum?
« Reply #15 on: April 09, 2018, 10:55:12 AM »
Markets are at all time highs, on average, every 18 days.  If you're waiting for some months long big drop, good luck.

I'd personally dump the whole thing into my taxable account and immediately buy SCHB, then adjust my IRA so my asset allocation remains on target.

All my advantaged accounts are taken care of.

frugal_c

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Re: What to do with large cash lump sum?
« Reply #16 on: April 09, 2018, 12:09:05 PM »
Like I said, I won't deny that theoretically lump sum is the way to go.

However, I have been on the lump sum side of the argument before.  I had a large ( for me) amount, invested it lump sum because you can't predict the market so you should maximize time in the market.  I won't bore you with details but there was a crash (2 actually!) and it took 13 years before I was in the black.   What I found was that I was okay keeping the money in but I didn't invest as much as I perhaps otherwise would have.  It is also just very painful when you start reading these articles where they mention that the market was at some 50 year high based on PE or CAPE or whatever and that it will probably be a lost decade.  Easy to ignore those warnings before hand but when you actually go through it, it is very disheartening.  It is easier to go through a crash when you are just giving up gains, harder when you are in the red.
« Last Edit: April 09, 2018, 12:10:42 PM by frugal_c »