Investing a windfall when the market is at “an all-time high?”

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SteadyAsSheGoes
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Investing a windfall when the market is at “an all-time high?”

Post by SteadyAsSheGoes »

In less than a month I’ll receive a windfall of $100k+. I’ve read all the usual things about windfalls and what not to do.

My fiscal house is in order; retirement accounts are maxed out annually with balances several times larger than this windfall. The only debt is a reasonable mortgage at a rock-bottom interest rate. The emergency fund is reasonably healthy. The entire portfolio across the various accounts is essentially an 85/15 three-fund portfolio (I’m relatively early in the accumulation phase so I have no trouble with an equity-heavy portfolio). However...

My plan with this windfall is to dump the whole thing into VTSAX in a taxable account. I’ll increase my bond holdings in a tax-deferred account so as to maximize tax efficiency while sticking to my asset allocation strategy.

What bugs me is that the stock market is at or near an all-time high which suggests that my $100k+ is almost certainly going to decrease in the short-term. In the long term I know it will increase. I know market timing is bad. I know time in the market is important. This is just strictly psychological. It feels very wrong to “buy high.” Suppose the market tanks and it takes ten years to recover? And then another ten years after that to grow appreciably? I don’t need this money anytime soon, but still. Maybe if I wait a month, the market will suffer it’s loss and then I’ll get in? Maybe if I wait six months? Maybe if I DCA this over a period of a few months? Hey look, S&P500 futures are up 1.08% this morning. Surely this isn’t sustainable and it’s going to implode “any day now.” But what the heck am I doing, trying to predict the future. And how come I have no problem dumping $730 every two weeks into my $401k but this lump sum has me thinking?

These are the types of thoughts swirling around my head. In the end I’ll do the logical thing and proceed with my plan as stated and I’ll never look back, because I’m definitely not the type to second-guess myself. But in the meantime, sheesh. I guess I’m looking for some thoughts from those more experienced than me who have been here before.

Happy Monday and Happy 4th!
Last edited by SteadyAsSheGoes on Mon Jul 01, 2019 4:33 am, edited 2 times in total.
livesoft
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Re: Investing a windfall when the market is at “an all-time high?”

Post by livesoft »

Just be happy your other $10,000,000 is already fully invested.
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onourway
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Re: Investing a windfall when the market is at “an all-time high?”

Post by onourway »

I would ask yourself what is different about this $100k than the other money you have invested, all of which could be converted to cash today and dollar cost averaged back into the market as well.
sambb
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Re: Investing a windfall when the market is at “an all-time high?”

Post by sambb »

just DCA over 6 months and dont worry about it
Dandy
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Dandy »

The normal advice especially for those in the accumulation stage is to just invest it at your target allocation and move on.

I tend to side a bit with being more cautious when there has been a record? bull run and the market is at an all time high. I would adjust my equity allocation a bit at least for this new money. Hopefully you have been rebalancing. Is it market timing? Yes. I'm in favor of doing it when markets are at an all time high or when they are down by more than 30% or so. Call it valuation rebalancing. Less important the earlier you are in the accumulation stage and/or if your allocation is moderate. It also should be a rare event.

When dealing with the decision of what your allocation should be always consider the dollars at risk not only the percentage allocation. As your investment assets grow and you age the dollars at risk become more important since the ability to make up any losses with contributions (and matches) declines.

Do you want to have a very aggressive equity allocation during a record bull market? when it is at an all time high? If so, go for it. It will probably turn out ok.
goblue100
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Re: Investing a windfall when the market is at “an all-time high?”

Post by goblue100 »

The market as measured by the S&P 500 was at an all time on March 28th 2013. If you had been asking yourself this question then, in hindsight what would the correct answer have been? Why will it not be the same going forward?

https://en.wikipedia.org/wiki/Closing_m ... 3-present)
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Rus In Urbe
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Rus In Urbe »

Well, I was in a similar position some years back.
I felt comfortable with the allocations of our investments.
Everything was on track and I came into a windfall.

I simply paid off our mortgage. Bam. Done.

I love living mortgage free, and while you say your mortgage is at a "rock-bottom" rate, add up what that accumulating interest adds to the cost of your home over time (yeah, yeah, the tax deduction argument, which only helps with a slice of it, and there is the argument you'll make more in the market).

Anyway, it's just a thought. Another place you can put a windfall to strengthen your hand.

And congrats for being in such a good position! :beer
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CyclingDuo
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Re: Investing a windfall when the market is at “an all-time high?”

Post by CyclingDuo »

SteadyAsSheGoes wrote: Mon Jul 01, 2019 4:29 amIn less than a month I’ll receive a windfall of $100k+. The only debt is a reasonable mortgage at a rock-bottom interest rate. The emergency fund is reasonably healthy.
There you go. Send the $100K windfall right at servicing that mortgage debt and have a tall one with a big smile.
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SpinPsycholer
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Re: Investing a windfall when the market is at “an all-time high?”

Post by SpinPsycholer »

Rus In Urbe wrote: Mon Jul 01, 2019 7:11 am I simply paid off our mortgage. Bam. Done.
+1. Great advice. The most freeing thing I did was to get rid of all debt, especially our mortgage. Forget the tax argument. We then were able to save 75-80% of our income. The vast majority of investment $ saved in last 10 years prior to retirement. Just retired last year at 61.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Living Free »

I agree with paying down mortgage if you're anxious about the market. That return is certain.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by AlohaJoe »

SteadyAsSheGoes wrote: Mon Jul 01, 2019 4:29 am What bugs me is that the stock market is at or near an all-time high which suggests that my $100k+ is almost certainly going to decrease in the short-term.
A lot of people believe this for some reason but it isn't remotely close to true. How could the market even go up if being near a high meant it would almost certainly go down?

In reality the market is almost always near an all-time high and the most likely result is that it keeps going up.

http://awealthofcommonsense.com/2017/03 ... ime-highs/

The market is weird so don't rely on what you think makes sense because your normal intuition will lead you astray.
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HomerJ
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Re: Investing a windfall when the market is at “an all-time high?”

Post by HomerJ »

SteadyAsSheGoes wrote: Mon Jul 01, 2019 4:29 amMaybe if I wait a month, the market will suffer it’s loss and then I’ll get in? Maybe if I wait six months?
Maybe it will go up 40% before it has a 20% loss, and waiting will cost you money. Even worse, you won't know to buy in exactly at the bottom of the 20% drop; you'll be expecting it to drop further, so it might start heading back up again before you pull the trigger.

And maybe you don't pull the trigger at all, because after it gains some back, you'll be sure it's way too high (again), and you'll want to wait for the "big crash" that you're sure (again) is right around the corner.

Market-timing is hard. The market is at "all-time highs" quite often during a bull market. You wouldn't have invested back in 1992 when the Dow Jones had hit all-time highs for years in a row, and was at a crazy high price of 3000.
Maybe if I DCA this over a period of a few months?
Sure do that. It might make it easier.

Or use half of it to pay off some of your mortgage... That's a guaranteed return.
Last edited by HomerJ on Mon Jul 01, 2019 8:44 am, edited 1 time in total.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Sandtrap »

Some options:

1. Diversify the 100k into fixed, for now. IE: High yield accounts, short term CD's, money market, etc.
Take some of it as you are comfortable and "concurrently" pay down your mortgage and add to your portfolio.

2. Pay down your mortgage with all of it.

3. Put all of it in your portfolio, all at once, right now.

4. Do all of #1-3 concurrently.

*All of the above actions are good ones. Which one will allow you to sleep better at night?
(inaction does not make for better sleep)

*Also, do this:
Read About Bob, The Worst Market Timer
What happens if you only invested at market highs?
http://awealthofcommonsense.com/2014/0 ... ket-timer/

. . . your move. . . . tee up. . . :shock:

j :D
Last edited by Sandtrap on Mon Jul 01, 2019 8:26 am, edited 1 time in total.
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aristotelian
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Re: Investing a windfall when the market is at “an all-time high?”

Post by aristotelian »

Split the difference. A large amount of cash can reduce your need to take risk, so perhaps you want to invest more conservatively moving forward. Reassess your risk tolerance, and then use the windfall to rebalance to your desired allocation.

How old are you and when are you planning to retire? It sounds like you do not have any savings outside of retirement accounts. I would not do the mortgage in that case. (We paid off our mortgage but it was a high interest rate, and it only used up about 1/2 of our liquidity).
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Re: Investing a windfall when the market is at “an all-time high?”

Post by jabberwockOG »

ssenneff wrote: Mon Jul 01, 2019 7:33 am
Rus In Urbe wrote: Mon Jul 01, 2019 7:11 am I simply paid off our mortgage. Bam. Done.
+1. Great advice. The most freeing thing I did was to get rid of all debt, especially our mortgage. Forget the tax argument. We then were able to save 75-80% of our income. The vast majority of investment $ saved in last 10 years prior to retirement. Just retired last year at 61.
100% agree. Great advice.
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BL
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Re: Investing a windfall when the market is at “an all-time high?”

Post by BL »

If you are scared, it doesn't make sense that your alternative is to put it all into stock fund. Maybe stick with your current AA for now, and change to all stock later "when stocks fall". No harm in dollar cost averaging if it makes you feel better. Set it up automatically if possible, kick in extra when stocks fall. (You might also be scared when things are crashing around you as well. Then it can really get scary!)
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SteadyAsSheGoes
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Re: Investing a windfall when the market is at “an all-time high?”

Post by SteadyAsSheGoes »

There’s a lot of wisdom in here. Thank you all for your insight. I feel better already :sharebeer
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Jack FFR1846 »

Zero risk: Pay towards your mortgage.

Some risk: Put it into VTSAX

New market highs occur, on average, every 18 days.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by MotoTrojan »

onourway wrote: Mon Jul 01, 2019 4:34 am I would ask yourself what is different about this $100k than the other money you have invested, all of which could be converted to cash today and dollar cost averaged back into the market as well.
This. Logically speaking you are lump summing your tax advantaged every day. If it made sense to DCA this, logically it would make sense to move your 401k/IRA to money market and DCA it too. Logic and emotion don’t always agree though.

I always lump sum. If the amount is significant enough to change my ability, need, or willingness to take risk then I will consider an allocation adjustment but it’ll be invested as soon as practical.
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Earl Lemongrab
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Earl Lemongrab »

The problem is, people focus on the form of the money. There's no difference between brand-new money recently invested and the stuff that's been there for years. In my tax-advantaged accounts I have 4x that amount in stocks. Should I sell all that because it's at "an all-time high"? Almost no one would recommend that.

You need to get out of the mindset that you can predict the markets. If you DCA for six months and the market does another December swoon, will you really feel better because you didn't put it in all at once?

I also think the recommendations to pay the mortgage down are poor. There's no rational reason to do that, it's all "you'll feel great!!!!"
nix4me
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Re: Investing a windfall when the market is at “an all-time high?”

Post by nix4me »

i read an article today that we are at an all time low....
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HomerJ
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Re: Investing a windfall when the market is at “an all-time high?”

Post by HomerJ »

Earl Lemongrab wrote: Mon Jul 01, 2019 5:39 pm The problem is, people focus on the form of the money. There's no difference between brand-new money recently invested and the stuff that's been there for years. In my tax-advantaged accounts I have 4x that amount in stocks. Should I sell all that because it's at "an all-time high"? Almost no one would recommend that.

You need to get out of the mindset that you can predict the markets. If you DCA for six months and the market does another December swoon, will you really feel better because you didn't put it in all at once?

I also think the recommendations to pay the mortgage down are poor. There's no rational reason to do that, it's all "you'll feel great!!!!"
Feeling great is a rational reason :)
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Re: Investing a windfall when the market is at “an all-time high?”

Post by sperry8 »

sambb wrote: Mon Jul 01, 2019 4:47 am just DCA over 6 months and dont worry about it
I'd recommend DCA'ing too but over 2 years. 25% every 6 months. I went all in with a windfall in 2007. In hindsight DCA was the call. I got a mulligan due to the V recovery... but who knows what happens after this bull run.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by willthrill81 »

SteadyAsSheGoes wrote: Mon Jul 01, 2019 4:29 am What bugs me is that the stock market is at or near an all-time high...
Would you feel better investing the money, without the advantage of foresight, in March of 2009? Of course not. You would have been every bit as fearful of stocks going to plunge as everyone else was.

I don't recall the precise statistics, but the stock market has historically reached new highs on a regular basis. That's just what the stock market does.

And if you were already invested in stocks at current prices, would you rush to sell right now? If not, then why are you fearful to buy? Every day that you own stocks is a day that you didn't sell and 'chose' to buy in a very real way.

Stop overthinking this and just invest the funds without any regard to where the market currently is. You know what the right thing is to do, so just do it.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Euphonium »

I like reading this article whenever I buy during an "all-time market high"

http://awealthofcommonsense.com/2014/02 ... ket-timer/
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Re: Investing a windfall when the market is at “an all-time high?”

Post by KyleAAA »

The stock market is almost always at an all time high. Do you think that means it is more likely to go down soon, for some reason?
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Re: Investing a windfall when the market is at “an all-time high?”

Post by mhadden1 »

Earl Lemongrab wrote: Mon Jul 01, 2019 5:39 pm The problem is, people focus on the form of the money. There's no difference between brand-new money recently invested and the stuff that's been there for years. In my tax-advantaged accounts I have 4x that amount in stocks. Should I sell all that because it's at "an all-time high"? Almost no one would recommend that.

You need to get out of the mindset that you can predict the markets. If you DCA for six months and the market does another December swoon, will you really feel better because you didn't put it in all at once?

I also think the recommendations to pay the mortgage down are poor. There's no rational reason to do that, it's all "you'll feel great!!!!"
I think Earl does the forum a real service, by often taking the time to give this clear and I think correct explanation, when people worry about investing their windfalls. Earl, this one's for you! :beer
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chem6022
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Re: Investing a windfall when the market is at “an all-time high?”

Post by chem6022 »

I've done both sides of DCA and lump-sum in the past, and both times they were wrong. DCA was painful because you end up being wrong many times in a row. Whereas lump-sum is really painful, but only once. Mostly I would advise to do the opposite of what I would do (j/k).

Moral of the story is don t time the market, but do consider if the windfall changes your IPS and bond allocation, either due to earlier retirement or being more conservative because you're closer to winning the game.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Kaktus »

"Moral of the story is don t time the market, but do consider if the windfall changes your IPS and bond allocation, either due to earlier retirement or being more conservative because you're closer to winning the game."

Well put! Exactly my thinking. That is the first question; Does the windfall change one's financial situation so much (ultimately subjective, but no way around that) that you should change your IPS? If no stay the course and feel good about your good planning. If yes you will probably turn more defensive.

Good luck!
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Re: Investing a windfall when the market is at “an all-time high?”

Post by msk »

DW has just come into $200k (sale of RE) and was wondering what to do "since the stock market is at an all time high" and we have no clue how the tariffs and nuclear discussions/nondiscussions will fare. Then she checked what the market did yesterday, UP! I suspect that she will lump-sum and get on with life...
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Re: Investing a windfall when the market is at “an all-time high?”

Post by Kristen »

In February of 2018 I found a high 5 figure error in my retirement account that required rebalancing from a bond fund into a stock fund. I did not want to fix it because the market was at an "all time high." I had the members of this forum talk me off the market timing ledge and just made the fix. Since then, the stock fund's price has increased by ~10% plus I have avoided 17 months of agonizing so far. Just do it. Or split it - lump sum half and DCA half.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by ponyboy »

Buy a crystal ball that shows you the future?

Id pay the mortgage.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by z3r0c00l »

If you wouldn't sell the stocks you already own, then that means there is nothing wrong with buying new shares.
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Re: Investing a windfall when the market is at “an all-time high?”

Post by sperry8 »

KyleAAA wrote: Mon Jul 01, 2019 10:42 pm The stock market is almost always at an all time high. Do you think that means it is more likely to go down soon, for some reason?
There have been 212 all time highs since the Great Recession. 212. And there are only two possibilities after an all time high is reached. Another all time high is eventually made. Or it isn't.

I still recommend DCA'ing even though the smart mathematical play is lump sum (since stocks rise 60% of the time). The fact that you're asking this question tells us something about your psyche and emotional state. People hate losses more than they enjoy gains. So for you I still recommend DCA'ing. But understand you may have said the same thing after the 50th all time high. Or 100th. Or 150th. And each time lump sum was the right answer.
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