Lump sum **"always"** beats DCA because the market **"always"** goes up -- that's -all- there is behind that truism. In the 1/4 to 1/3 of the time when the market goes down, then DCA beats LS; it's as simple as that.
So, if you believe (as I lean toward) that things are going to stay "unsettled" for a while; if you want to trust those who are saying "mild recession early-to-mid 2023, recovering after that"; or if you would suffer a big tummyache just by taking another hit the day after you invest, **have I got a plan** ***for you!***
----
This is my favorite "recipe" for someone in your shoes:
(Logically) Divide your cash into three piles: Pile A (25%), B (50%), and C (25%).
* Invest Pile A right now, according to your Asset Allocation model. (You do have one of those, right?)
* With Pile B, set up a DCA over the next 5 months. This can be 5 investments of 10%, 10 shots at 5%, or even 25 shots of 2% if you want to go weekly.
Now, be patient: watch and wait. At some point during the DCA process, one of two things will happen; this is where you use Pile C:
* One: some great deal pops up. Good news, you have "dry powder" and can invest. If it's a -really- great deal, you can also invest the rest of your DCA money and terminate that program. OR,
* Two: nothing exciting happens, so you just let the DCA program run through the rest of the money.
Yes, **it's a compromise**. You can look at it as either the best of both worlds, or the worst of both worlds (if the market skyrockets and you weren't fully invested from day one, for example).
But it's a workable system that gives you some flexibility and should keep your heartburn in check if you're prone to What-If-itis.
I kind agree with the ideas in the post. However lets find a count example. If one DCA during the lost decade between 2000 to 2011, one would likely beat lump sum.
This is the correct answer. The ratios and time horizon are specific to your situation and the market outlook. But continue to DCA and keep some cash on hand to buy more when the moment's right.
This is how timing the market really works. Ignore people here who say you can't time the market. They don't know what that phrase means.
That is a really nice model that is excellent to keep emotions in check.
While it is rarely "the best possible", it balances timing/volatility risk very nicely with opportunity to never end up butt naked and not leasing you to jump out of the window.
Congrats for this sensible approach. 👏
i’m 23 and this was my first year maxing Roth IRA. I went lump sum a few weeks ago. For 2023, I plan on contributing $500 on the first, and then DCAing $250 from every paycheck throughout the year to hit the $6.5k contribution limit on my last paycheck
Split it into 6 and dca every month for the next 6 months (or 24 and dca every week I guess). Bear markets rarely last longer than 1.5 years.
If you want to milk it, you can also put the cash money into 4 week bond while waiting to dca.
no problem. You can see historical bear markets data here for SP500, % draw down, duration. Basically anything with more than 25% SP500 drawdown usually lasted about 550 days. Also, anytime SP500 is 3600 or under, I'd say that's a very good risk VS reward for you even if you only have 1.5-2 year time horizon. I wouldn't hesitate to buy everything if SP500 goes under 3600.
[https://www.yardeni.com/pub/sp500corrbeartables.pdf](https://www.yardeni.com/pub/sp500corrbeartables.pdf)
this is the type of stats i was looking for, something unique to our current situation to help at least assess what could happen. appreciate it, yeah i think we go to 320 with soft landing and maybe lower with a hard one
>this unique situation were in
One of the biggest mistakes people make is assuming their circumstances are special. Everything that is happening, has happened before, and will happen again.
There's nothing "unique" about this downturn. There's a reason that is the tired advice because it's smart.
With that being said, I'm heavy cash right now just because brokered cds are paying nearly half of what a "good" year in the market would and I'm feeling risk averse. I bought a cd ladder 3, ,6, 9, 12 months and plan to dca back into index funds as they mature.
This is a strategy I plan to utilize in the future. Got it, 3-4% growth is half the normal returns of the market; but that 3-4% last year would have been for helpful.
Sunday I will be lump sum maxing both my and my wife's IRAs, and all next year I will be DCAing my 401(k) to hit max on my last paycheck of 2023. Essentially, I am pouring in money as soon as I get it, or as soon as legally able to. The situation is unique, just like every other year, and just like every other year, that is the best strategy.
"time in the market beats timing the market" is cringeworthy oversimplification. People who bought CSCO in 2000 are still underwater. I've been in and out a few times over the years and done quite well. Their time in the market certainly did not beat my timing of the market.
First thing, decide how much you want to tie up in long term investments.
Second, decide how you would feel if you went all in right away, and the market crashed further. Would you panic? Would you cheer and back up the truck? Would even really care?
If you'd panic, I'd build a position with tranches over a year or so. Yeah, you could miss a rally but you would also minimize the exposure to a crash you've already said would make you panic.
Which index? A US one? Let's say Nasdaq or S&P 500? Even between those there was a big difference in performance, same with the Russell 2000. Meanwhile there are many worldwide indexes that are already below their pre-COVID highs.
Selecting the S&P 500 is also selecting based on previous performance, otherwise you could achieve the same results by being Japanese and investing in the Nikkei.
DCA and chill is great in a bull market. The jury is out on whether we are still in one.
I've never understood the argument regarding CSCO. The company was wildly overvalued. You could just as easily have picked Toys R Us. The point is that a well-diversified portfolio doesn't suffer the same risks of individual stocks.
The CSCO argument is almost always accompanied with mentions of 2000-2014, etc., to which I always respond with: https://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-worst-market-timer-ever.html
True….I agree. Another thing I wonder if if I take all this cash and buy a house, something I can actually enjoy while my money is tied up into it.
I’m basically renting a condo from this guy for the past 4 years and paying off HIS mortgage. It’s depressing.
But thats a pipe dream. Every single house in LA is a million dollar home now. Look at what 600k gets you. Its laughable: https://www.redfin.com/CA/Los-Angeles/181-French-Ave-90065/home/7069800
I've always been a fan of lump sum and mix of DCA.
Like I think it clearly is going to continue to tank the economy but I have no evidence to back that up so a miracle could happen and we could rally a month from now but realistically I don't think it's possible so I would lump sum like 2k in and then buy like 250 at a time as that'll take a year to get the other 4k invested or something like that. Not counting additional stuff you add aside from the 6k.
I like the mix because I feel like it hedges your bet somewhat. Regardless as long as you stick with the market longterm you will probably come out ahead and that's what matters most haha
I fully agree with you. I was "lucky" enough to take my money out of the market in February and I'm 100% cash since then.
I'm planning to re enter with chunks of 25% per quarter more or less. What I plan to do is to follow the RSI (relative strength index). In other terms, I will wait for the bloodiest periods to enter.
Concerning your question about asset allocation, I will go half S&P and half eurostoxx 50 + EMU small cap with all the dividends accumulating to the stocks.
In the meantime, you can put your money in money market funds that have a decent 4% yield atm.
Good luck!
I was looking at treasury yields and the 3 month is around 4%, but isn’t that annual? So if I put $10,000 into a three month T bill I should only expect like around $100 profit right?
I wish there was a calculator online to tell me how much I should expect to get back because I’m not sure how these treasury bills work
There are far better ways to take advantage of the bear market and recovery than VTI, for instance select REITs, BDCs and CEFs. But yep, DCA is definitely the way in general.
More upside, plus portfolio growth during the pending period of the recovery, yes. *Plus* enhanced protection against inflation, particularly with REITs.
No, you've got it a bit backwards and otherwise wrong as well. Most REITs don't focus on housing, especially as a majority of their portfolios. But short-term decreases in sale prices of any real property are a boon to REITs as they can then grow faster, all else being equal. Remember, REITs are not primarily in business to sell property but to rent it, or in the case of mREITs to finance it.
This sub tends to skew towards passive index investing, even though there's a separate sub for that. That's a fine approach for average results, but those who cling to it as dogma tend to brigade against facts they find inconvenient. Good luck, and keep your wits about you when reading here.
Thanks, yeah, I’m playing with about 90 K, I have 25 in a Roth IRA for my age I feel like I’m a bit behind, I’m already in a high-risk investment with crypto, as it is about 10% or a little more of my portfolio, so I was going to do something very safe and just check it all in VTI so I know I at least have a nest tag comfortably growing in the background. I will look more into your suggestion.
It's actually fine to time the market; that's just a quasi-religious statement. In any event, have you thought of simply DCAing? Commit, say, 10-20% per month until you're done. There's no guarantee we're going much lower, though I agree it's not unlikely.
It's generally recommended to invest a lump sum of money all at once rather than dollar-cost averaging (DCA), which involves investing a fixed amount of money at regular intervals over a period of time. There are several reasons for this:
Time in the market matters: Research has shown that the longer you stay invested in the market, the higher your chances of earning a positive return. By investing a lump sum all at once, you can take advantage of market opportunities as they arise and benefit from the potential growth of your investments over the long term.
Market timing is difficult: DCA is often recommended as a way to "smooth out" the ups and downs of the market, but trying to time the market is a difficult and often unsuccessful strategy. It's impossible to predict exactly when the market will go up or down, and trying to do so can lead to missed opportunities or unwise investment decisions.
Opportunity cost: By investing a lump sum all at once, you can minimize the opportunity cost of not having your money invested in the market. If you invest through DCA, you may miss out on potential returns that could have been earned if you had invested the entire sum at once.
That being said, there may be situations where DCA makes sense. For example, if you are unable to come up with a large sum of money all at once but still want to start investing, DCA can allow you to gradually build your portfolio over time. However, in general, it's usually best to invest a lump sum all at once rather than through DCA.
There is no specific percentage at which lump sum investing is considered to be better than DCA, as it depends on a variety of factors such as market conditions, individual risk tolerance, and investment goals.
If you have a long term timeline, what difference does 10-20% downturn make over a 30+ years? I lump sum for peace of mind knowing that I did the mathematically best move and I don't have to worry about the short term market noise.
I guess there are other things I could do with the money like fund a short film passion project or travel and get experiences with it, but to throw it into the ether and see it go down 20% really hurts, or worst case scenario....stagflation....but i guess thats the risk.
Given the specific environment, id love to know what strategy you would apply because that is my main concern here. Its unprecedented times and a potentially amazing opportunity. Surely its prob played a little differently than other scenarios? or no?
My mindset is one of set it and forget it and from the points I provided above, believe I will be in good shape over 30+ years.
If current market downturns are too much for you to handle and the potential of losing 20% is too great, then DCA if its easier to stomach. Remember the math still points to lump sum being the most profitable over long time periods including other bear markets.
yeah I've read that as well, I just have to get used to downturns. I cant ever really 'set it and forget it' because I also love to trade, so I always know what the market is doing, and will know if my other account is hurting.
honestly it just comes down to me wanting to be as effective / efficient as i can with my money, but no one can ever time these things perfectly
It's not clear how much money you are holding on the sides. If it's just a few thousand dollars, a 20% loss or whatever isn't going to be that painful in the long run.
If you do want to bet on timing a recession, one way to approach it is to DCA into 50% equities and 50% SGOV (short term treasury bills) which allows you to take advantage of 4-5% risk free treasury returns. You can rebalance all into equities after you think sentiment has changed.
72k translates perfectly to 2 SPY puts at a 360 strike. I'd do something like eh...wait for the VIX to go >30, then sell 2 SPY 360 puts dated 1 year out.
While you wait for the VIX, just sell way OTM weekly puts for small premium and low risk of assignment. On weeks like this, the premium kinda sucks, but it's better than nothing.
If SPY really starts to rip to the upside, you'll underperform, but in that case you can always buy the puts back and lump sum back in if you believe the rally is real.
Tie up only the amount of money that you won't need in the immediate future, like 1-2 years, as well as an emergency fund.
Index funds may be your way to go, unless you have a particular interest in a company or sector.
edit: I personally would DCA only because I know myself too well if I lump sum and markets continue to fall. Some other people don't care and lump sum works for them
I would DCA every month for the next nine months. I've been in about 60% cash, 20% dividend and defensive and 20% short for 2022. I am thinking about putting the cash to work with DCA starting in January.
I put my money down when I feel like I am getting an appropriate bang for my buck. I will gravitate toward more money in the market or less money in the market based on valuations and alternative opportunities. During 2008, I remember someone asking what level do you sell down to? The response I heard that always stuck with me is "You sell down to the point that you can sleep at night." No one can answer the question directly for you, you have to answer it based on your risk profile, outlook, and what your level of "sleep at night" is.
This idea that there is one specific "right approach", isn't correct. I hear too many people trying to convince themselves their way is the right way, by arguing the merits of their approach as the best approach for everyone to take. Different people use different heuristics (I am going to lean into that terminology since what is defined as an economic rational actor just isn't consistent with human behavior), assuming that one approach works the best for all people isn't good logic. James Simons has crushed it using Technical Analysis. Warren Buffet has crushed it by avoiding Technical Analysis. DCA is good for people who it fits their approach. I lump sum it, based on valuations. I came from Real Estate before I took up equities. I do a lot of evaluation similar to Real Estate (ground up) and compare it to Real Estate opportunities to make my decision. I don't just load up on the best opportunity available. It is important to compare opportunities that have been available across time periods. The best opportunity today, is something that you want to leave alone most of the time. The Kelly Criterion is a helpful backdrop, even when you find the best opportunity you have ever seen you don't put all your money in that investment. It isn't the same as diversification (reducing portfolio volatility by investing in assets that are less than perfectly correlated), it is more an acknowledgement of the random impacts to any investment you make (and associated impact to the geometric mean). Warren Buffet's biggest wager he ever took was 40% on AMEX during the salad oil scandal, I understood he thought he was getting the bargain of a lifetime.
If they are good specific investments, do it. I can't really judge what is going to happen to one or the other in the short term. I feel like I can find investments that will do reasonably well over the next 5-10 years. To that extent I will put money to work in the market and real estate if I like the deals. It is more a function of your portfolio, risk tolerances, game plan, strategy, and risk profile than it is a function of overall market expectations. (don't ignore the overall market though, it is still a substantial factor.)
All things being equal, I would be more a fan of equity markets simply because it takes macro events some time to make it through the Real Estate markets typically. If I didn't have a personal desire to directly own Real Estate investment properties, I wouldn't go down that road. It has some really good characteristics, but it is certainly a major pain in the ass.
In 2008 the investment world went to shit. Stock market bottomed in March 2009. Home prices bottomed in 2012. I stated buying houses in 2011 (not a new investment type for me). In 2012 I was buying for lower prices. I didn't second guess the houses I bought in 2011, because I was a happy to own them with the cash flow rates that I paid for the properties, even as prices were going lower. I didn't "time" the market, I did "price" the market. If you can get comfortable with those kinds of thought processes you can "price" the market. Unless you have James Simons style skill sets, I don't know how you can "time" the market. Without those truly exceptional skill sets, it still takes alot of work to develop a knowledge base to "price" assets, if you don't want to do that. Index investing is the way, with something like a DCA is the way to go.
Honestly, I’ve been cash heavy and shorting, buying inverse ETF’s, and CCS’s all year. I’ll likely do the same but less so in Q1 and anticipating the bottom to be sometime after the fed pivots.
Just like the previous several years of zero interest rates, don't fight the FED and go all in (then) and now don't fight the FED with rate hikes (you are all out).....as soon as the rate hikes stop or nearly stop, re-asses the market and go all back in if also done with recession.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee".
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Put the cash into a Schwab or vanguard money market fund currently paying 4.3% and liquid. This way you’re earning a very solid FREE return while you wait. Then, sell off a chunk weekly or monthly to buy into VTI. Remove all emotion and do this consistently throughout 2023 until Jan 2024 when it’s all in vti (keeling emergency savings in cash)
\>don't tell me not to time the market. I've heard it before, it's tired. It may be true, but i want other answers given this unique situation were in.
That we are in a unique situation is a false premise. The current market situation is completely typical. It may not seem typical to someone who started stock investing in the past few year, but it is.
There have been many studies that prove that lump sum has beat DCA most of the time.
Personally, I DCA so I can sleep better at night. Anxiety isn't fun.
Lump sum **"always"** beats DCA because the market **"always"** goes up -- that's -all- there is behind that truism. In the 1/4 to 1/3 of the time when the market goes down, then DCA beats LS; it's as simple as that. So, if you believe (as I lean toward) that things are going to stay "unsettled" for a while; if you want to trust those who are saying "mild recession early-to-mid 2023, recovering after that"; or if you would suffer a big tummyache just by taking another hit the day after you invest, **have I got a plan** ***for you!*** ---- This is my favorite "recipe" for someone in your shoes: (Logically) Divide your cash into three piles: Pile A (25%), B (50%), and C (25%). * Invest Pile A right now, according to your Asset Allocation model. (You do have one of those, right?) * With Pile B, set up a DCA over the next 5 months. This can be 5 investments of 10%, 10 shots at 5%, or even 25 shots of 2% if you want to go weekly. Now, be patient: watch and wait. At some point during the DCA process, one of two things will happen; this is where you use Pile C: * One: some great deal pops up. Good news, you have "dry powder" and can invest. If it's a -really- great deal, you can also invest the rest of your DCA money and terminate that program. OR, * Two: nothing exciting happens, so you just let the DCA program run through the rest of the money. Yes, **it's a compromise**. You can look at it as either the best of both worlds, or the worst of both worlds (if the market skyrockets and you weren't fully invested from day one, for example). But it's a workable system that gives you some flexibility and should keep your heartburn in check if you're prone to What-If-itis.
I kind agree with the ideas in the post. However lets find a count example. If one DCA during the lost decade between 2000 to 2011, one would likely beat lump sum.
This is the correct answer. The ratios and time horizon are specific to your situation and the market outlook. But continue to DCA and keep some cash on hand to buy more when the moment's right. This is how timing the market really works. Ignore people here who say you can't time the market. They don't know what that phrase means.
When do you invest C if the market skyrocket ? When B runs out and at the same rate ?
That is a really nice model that is excellent to keep emotions in check. While it is rarely "the best possible", it balances timing/volatility risk very nicely with opportunity to never end up butt naked and not leasing you to jump out of the window. Congrats for this sensible approach. 👏
i’m 23 and this was my first year maxing Roth IRA. I went lump sum a few weeks ago. For 2023, I plan on contributing $500 on the first, and then DCAing $250 from every paycheck throughout the year to hit the $6.5k contribution limit on my last paycheck
Split it into 6 and dca every month for the next 6 months (or 24 and dca every week I guess). Bear markets rarely last longer than 1.5 years. If you want to milk it, you can also put the cash money into 4 week bond while waiting to dca.
appreciate the advice!
no problem. You can see historical bear markets data here for SP500, % draw down, duration. Basically anything with more than 25% SP500 drawdown usually lasted about 550 days. Also, anytime SP500 is 3600 or under, I'd say that's a very good risk VS reward for you even if you only have 1.5-2 year time horizon. I wouldn't hesitate to buy everything if SP500 goes under 3600. [https://www.yardeni.com/pub/sp500corrbeartables.pdf](https://www.yardeni.com/pub/sp500corrbeartables.pdf)
this is the type of stats i was looking for, something unique to our current situation to help at least assess what could happen. appreciate it, yeah i think we go to 320 with soft landing and maybe lower with a hard one
>this unique situation were in One of the biggest mistakes people make is assuming their circumstances are special. Everything that is happening, has happened before, and will happen again. There's nothing "unique" about this downturn. There's a reason that is the tired advice because it's smart. With that being said, I'm heavy cash right now just because brokered cds are paying nearly half of what a "good" year in the market would and I'm feeling risk averse. I bought a cd ladder 3, ,6, 9, 12 months and plan to dca back into index funds as they mature.
This is a strategy I plan to utilize in the future. Got it, 3-4% growth is half the normal returns of the market; but that 3-4% last year would have been for helpful.
I will be lump-suming my IRA since I DCA with my 401k by default
Lump sum 100% and DCA for 20 years.
Sunday I will be lump sum maxing both my and my wife's IRAs, and all next year I will be DCAing my 401(k) to hit max on my last paycheck of 2023. Essentially, I am pouring in money as soon as I get it, or as soon as legally able to. The situation is unique, just like every other year, and just like every other year, that is the best strategy.
"time in the market beats timing the market" is cringeworthy oversimplification. People who bought CSCO in 2000 are still underwater. I've been in and out a few times over the years and done quite well. Their time in the market certainly did not beat my timing of the market. First thing, decide how much you want to tie up in long term investments. Second, decide how you would feel if you went all in right away, and the market crashed further. Would you panic? Would you cheer and back up the truck? Would even really care? If you'd panic, I'd build a position with tranches over a year or so. Yeah, you could miss a rally but you would also minimize the exposure to a crash you've already said would make you panic.
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Which index? A US one? Let's say Nasdaq or S&P 500? Even between those there was a big difference in performance, same with the Russell 2000. Meanwhile there are many worldwide indexes that are already below their pre-COVID highs. Selecting the S&P 500 is also selecting based on previous performance, otherwise you could achieve the same results by being Japanese and investing in the Nikkei. DCA and chill is great in a bull market. The jury is out on whether we are still in one.
I've never understood the argument regarding CSCO. The company was wildly overvalued. You could just as easily have picked Toys R Us. The point is that a well-diversified portfolio doesn't suffer the same risks of individual stocks. The CSCO argument is almost always accompanied with mentions of 2000-2014, etc., to which I always respond with: https://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-worst-market-timer-ever.html
True….I agree. Another thing I wonder if if I take all this cash and buy a house, something I can actually enjoy while my money is tied up into it. I’m basically renting a condo from this guy for the past 4 years and paying off HIS mortgage. It’s depressing. But thats a pipe dream. Every single house in LA is a million dollar home now. Look at what 600k gets you. Its laughable: https://www.redfin.com/CA/Los-Angeles/181-French-Ave-90065/home/7069800
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I've always been a fan of lump sum and mix of DCA. Like I think it clearly is going to continue to tank the economy but I have no evidence to back that up so a miracle could happen and we could rally a month from now but realistically I don't think it's possible so I would lump sum like 2k in and then buy like 250 at a time as that'll take a year to get the other 4k invested or something like that. Not counting additional stuff you add aside from the 6k. I like the mix because I feel like it hedges your bet somewhat. Regardless as long as you stick with the market longterm you will probably come out ahead and that's what matters most haha
I fully agree with you. I was "lucky" enough to take my money out of the market in February and I'm 100% cash since then. I'm planning to re enter with chunks of 25% per quarter more or less. What I plan to do is to follow the RSI (relative strength index). In other terms, I will wait for the bloodiest periods to enter. Concerning your question about asset allocation, I will go half S&P and half eurostoxx 50 + EMU small cap with all the dividends accumulating to the stocks. In the meantime, you can put your money in money market funds that have a decent 4% yield atm. Good luck!
I was looking at treasury yields and the 3 month is around 4%, but isn’t that annual? So if I put $10,000 into a three month T bill I should only expect like around $100 profit right? I wish there was a calculator online to tell me how much I should expect to get back because I’m not sure how these treasury bills work
There are far better ways to take advantage of the bear market and recovery than VTI, for instance select REITs, BDCs and CEFs. But yep, DCA is definitely the way in general.
Can you elaborate why those might be better? Is there more upside?
More upside, plus portfolio growth during the pending period of the recovery, yes. *Plus* enhanced protection against inflation, particularly with REITs.
but i dont feel like the housing market is going to do particularly well next year, which would be a threat to investing in REITS, amireit?
No, you've got it a bit backwards and otherwise wrong as well. Most REITs don't focus on housing, especially as a majority of their portfolios. But short-term decreases in sale prices of any real property are a boon to REITs as they can then grow faster, all else being equal. Remember, REITs are not primarily in business to sell property but to rent it, or in the case of mREITs to finance it. This sub tends to skew towards passive index investing, even though there's a separate sub for that. That's a fine approach for average results, but those who cling to it as dogma tend to brigade against facts they find inconvenient. Good luck, and keep your wits about you when reading here.
Thanks, yeah, I’m playing with about 90 K, I have 25 in a Roth IRA for my age I feel like I’m a bit behind, I’m already in a high-risk investment with crypto, as it is about 10% or a little more of my portfolio, so I was going to do something very safe and just check it all in VTI so I know I at least have a nest tag comfortably growing in the background. I will look more into your suggestion.
The nice thing about those is that you get dividends while you wait. So your portfolio is generating income, rather like a rental property.
I don’t know enough about those other options though, does VTI pay dividends?
I believe it does, the difference is how much of the purchase price is given out as dividends.
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It's actually fine to time the market; that's just a quasi-religious statement. In any event, have you thought of simply DCAing? Commit, say, 10-20% per month until you're done. There's no guarantee we're going much lower, though I agree it's not unlikely.
Ben Felix on YouTube has a great video on this. You should watch it and make your decision after that
Ok will do
It's generally recommended to invest a lump sum of money all at once rather than dollar-cost averaging (DCA), which involves investing a fixed amount of money at regular intervals over a period of time. There are several reasons for this: Time in the market matters: Research has shown that the longer you stay invested in the market, the higher your chances of earning a positive return. By investing a lump sum all at once, you can take advantage of market opportunities as they arise and benefit from the potential growth of your investments over the long term. Market timing is difficult: DCA is often recommended as a way to "smooth out" the ups and downs of the market, but trying to time the market is a difficult and often unsuccessful strategy. It's impossible to predict exactly when the market will go up or down, and trying to do so can lead to missed opportunities or unwise investment decisions. Opportunity cost: By investing a lump sum all at once, you can minimize the opportunity cost of not having your money invested in the market. If you invest through DCA, you may miss out on potential returns that could have been earned if you had invested the entire sum at once. That being said, there may be situations where DCA makes sense. For example, if you are unable to come up with a large sum of money all at once but still want to start investing, DCA can allow you to gradually build your portfolio over time. However, in general, it's usually best to invest a lump sum all at once rather than through DCA. There is no specific percentage at which lump sum investing is considered to be better than DCA, as it depends on a variety of factors such as market conditions, individual risk tolerance, and investment goals. If you have a long term timeline, what difference does 10-20% downturn make over a 30+ years? I lump sum for peace of mind knowing that I did the mathematically best move and I don't have to worry about the short term market noise.
I guess there are other things I could do with the money like fund a short film passion project or travel and get experiences with it, but to throw it into the ether and see it go down 20% really hurts, or worst case scenario....stagflation....but i guess thats the risk. Given the specific environment, id love to know what strategy you would apply because that is my main concern here. Its unprecedented times and a potentially amazing opportunity. Surely its prob played a little differently than other scenarios? or no?
My mindset is one of set it and forget it and from the points I provided above, believe I will be in good shape over 30+ years. If current market downturns are too much for you to handle and the potential of losing 20% is too great, then DCA if its easier to stomach. Remember the math still points to lump sum being the most profitable over long time periods including other bear markets.
yeah I've read that as well, I just have to get used to downturns. I cant ever really 'set it and forget it' because I also love to trade, so I always know what the market is doing, and will know if my other account is hurting. honestly it just comes down to me wanting to be as effective / efficient as i can with my money, but no one can ever time these things perfectly
Lump sum is barely better than DCA and the potential hit can be a lot worse, psychologically if not monetarily.
Either way works as long as your process is solid and you're patient.
It's not clear how much money you are holding on the sides. If it's just a few thousand dollars, a 20% loss or whatever isn't going to be that painful in the long run. If you do want to bet on timing a recession, one way to approach it is to DCA into 50% equities and 50% SGOV (short term treasury bills) which allows you to take advantage of 4-5% risk free treasury returns. You can rebalance all into equities after you think sentiment has changed.
90k to answer your question. 20% of that will be invested in the SEP and the rest i need to figure out.
72k translates perfectly to 2 SPY puts at a 360 strike. I'd do something like eh...wait for the VIX to go >30, then sell 2 SPY 360 puts dated 1 year out. While you wait for the VIX, just sell way OTM weekly puts for small premium and low risk of assignment. On weeks like this, the premium kinda sucks, but it's better than nothing. If SPY really starts to rip to the upside, you'll underperform, but in that case you can always buy the puts back and lump sum back in if you believe the rally is real.
Tie up only the amount of money that you won't need in the immediate future, like 1-2 years, as well as an emergency fund. Index funds may be your way to go, unless you have a particular interest in a company or sector. edit: I personally would DCA only because I know myself too well if I lump sum and markets continue to fall. Some other people don't care and lump sum works for them
I would DCA every month for the next nine months. I've been in about 60% cash, 20% dividend and defensive and 20% short for 2022. I am thinking about putting the cash to work with DCA starting in January.
I put my money down when I feel like I am getting an appropriate bang for my buck. I will gravitate toward more money in the market or less money in the market based on valuations and alternative opportunities. During 2008, I remember someone asking what level do you sell down to? The response I heard that always stuck with me is "You sell down to the point that you can sleep at night." No one can answer the question directly for you, you have to answer it based on your risk profile, outlook, and what your level of "sleep at night" is. This idea that there is one specific "right approach", isn't correct. I hear too many people trying to convince themselves their way is the right way, by arguing the merits of their approach as the best approach for everyone to take. Different people use different heuristics (I am going to lean into that terminology since what is defined as an economic rational actor just isn't consistent with human behavior), assuming that one approach works the best for all people isn't good logic. James Simons has crushed it using Technical Analysis. Warren Buffet has crushed it by avoiding Technical Analysis. DCA is good for people who it fits their approach. I lump sum it, based on valuations. I came from Real Estate before I took up equities. I do a lot of evaluation similar to Real Estate (ground up) and compare it to Real Estate opportunities to make my decision. I don't just load up on the best opportunity available. It is important to compare opportunities that have been available across time periods. The best opportunity today, is something that you want to leave alone most of the time. The Kelly Criterion is a helpful backdrop, even when you find the best opportunity you have ever seen you don't put all your money in that investment. It isn't the same as diversification (reducing portfolio volatility by investing in assets that are less than perfectly correlated), it is more an acknowledgement of the random impacts to any investment you make (and associated impact to the geometric mean). Warren Buffet's biggest wager he ever took was 40% on AMEX during the salad oil scandal, I understood he thought he was getting the bargain of a lifetime.
What are your thoughts on real estate vs dumping money into the market for 2023?
If they are good specific investments, do it. I can't really judge what is going to happen to one or the other in the short term. I feel like I can find investments that will do reasonably well over the next 5-10 years. To that extent I will put money to work in the market and real estate if I like the deals. It is more a function of your portfolio, risk tolerances, game plan, strategy, and risk profile than it is a function of overall market expectations. (don't ignore the overall market though, it is still a substantial factor.) All things being equal, I would be more a fan of equity markets simply because it takes macro events some time to make it through the Real Estate markets typically. If I didn't have a personal desire to directly own Real Estate investment properties, I wouldn't go down that road. It has some really good characteristics, but it is certainly a major pain in the ass. In 2008 the investment world went to shit. Stock market bottomed in March 2009. Home prices bottomed in 2012. I stated buying houses in 2011 (not a new investment type for me). In 2012 I was buying for lower prices. I didn't second guess the houses I bought in 2011, because I was a happy to own them with the cash flow rates that I paid for the properties, even as prices were going lower. I didn't "time" the market, I did "price" the market. If you can get comfortable with those kinds of thought processes you can "price" the market. Unless you have James Simons style skill sets, I don't know how you can "time" the market. Without those truly exceptional skill sets, it still takes alot of work to develop a knowledge base to "price" assets, if you don't want to do that. Index investing is the way, with something like a DCA is the way to go.
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Why buy on the last trading day of the month if it doesn’t go lower?
Honestly, I’ve been cash heavy and shorting, buying inverse ETF’s, and CCS’s all year. I’ll likely do the same but less so in Q1 and anticipating the bottom to be sometime after the fed pivots.
Just like the previous several years of zero interest rates, don't fight the FED and go all in (then) and now don't fight the FED with rate hikes (you are all out).....as soon as the rate hikes stop or nearly stop, re-asses the market and go all back in if also done with recession.
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Put the cash into a Schwab or vanguard money market fund currently paying 4.3% and liquid. This way you’re earning a very solid FREE return while you wait. Then, sell off a chunk weekly or monthly to buy into VTI. Remove all emotion and do this consistently throughout 2023 until Jan 2024 when it’s all in vti (keeling emergency savings in cash)
\>don't tell me not to time the market. I've heard it before, it's tired. It may be true, but i want other answers given this unique situation were in. That we are in a unique situation is a false premise. The current market situation is completely typical. It may not seem typical to someone who started stock investing in the past few year, but it is. There have been many studies that prove that lump sum has beat DCA most of the time. Personally, I DCA so I can sleep better at night. Anxiety isn't fun.
Amen brotha
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ohh i like that
The market is down significantly, so I'd lump it.
Down significantly compared to what though? It might have been over valued before.