35% cash, nearly 40

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Topic Author
AvocadoDeliberator
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Joined: Sun Jul 25, 2021 10:15 pm

35% cash, nearly 40

Post by AvocadoDeliberator »

My first post. I didn’t do indexing early with age appropriate AA. Don’t want to psycho analyze myself but my wife and I didn’t turn up the heat on the right AA till we were in our mid 30s which I now know was a big mistake. We always lived well below our means, we have had good incomes and saved a lot. But not being in the market with age appropriate Aa has cost us dearly. My rough calc, probably around 600k! hit to our could be net worth today & counting. I never forget to pat my back for that.

Our residence is fully paid but we still have almost 300k in cash (“high” 2% interest cd/mm). Rest is all in our paid off house. Of what is in the “market” we have 60% stocks, 40 in bonds (total bond, muni & i bonds). still behind in our AA… but We fortunately have maxed our 401k now and also try to max our after tax account which I periodically move to my Roth the mega back door way. So the current income is now scheduled well to go to the right bins.

Question I have is should I DCA the 300k in today’s market? Currently I have set about 2k to be invested every Friday. This probably falls under “don’t time the market” argument and I probably should do just a lump sum jump but I am not sure if that’s correct. I keep reading DCA comments everywhere. Hope some of you will be kind enough to educate this uninformed almost 40 years old!
LeftCoastIV
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Re: 35% cash, nearly 40

Post by LeftCoastIV »

Don’t worry about the past investing mistake. Nothing can be done about it.

I’d suggest figuring out the size of emergency fund you need, then invest the remaining cash to achieve your desired AA. There is a lot of discussion on this forum on lump sum vs DCA, with the research stating lump sum is usually superior. That said, we are DCA’ing for risk management. 2k per week (100k per year) is maybe a little slow, but that’s your call.

Also, your 2% cash return is better than most bond funds, especially when adjusted for risk.

Another thought: Be careful on overweighting your AA to “catch up” unless you are confident you can handle a significant equity decline without selling.
UpperNwGuy
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Re: 35% cash, nearly 40

Post by UpperNwGuy »

I just did a large lump sum last month because I felt that was a lower risk course of action than DCA.
lakpr
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Re: 35% cash, nearly 40

Post by lakpr »

With a fully paid off home, I do think you can go up to 75:25 ratio than 60:40. I am a big believer in Age-20 allocation to bonds, which suggests a 80:20 actually but if you are a bit shy 70:30 or 75:25 would be better.
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Wiggums
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Re: 35% cash, nearly 40

Post by Wiggums »

The weekly $2k fund purchase is quite small. If you look at your 60/40 fund, you will find that the fund price does not swing all that much, so it’s better to get your money in the market faster. Time in the market is your friend.
"I started with nothing and I still have most of it left."
muffins14
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Re: 35% cash, nearly 40

Post by muffins14 »

Best to not try to time the market anymore.

150k tomorrow
10k per week after

Finished in 15 weeks

2k per week would take you almost 3 years to get fully invested. That’s a high expected opportunity cost
Crom laughs at your Four Winds
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drumboy256
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Re: 35% cash, nearly 40

Post by drumboy256 »

AvocadoDeliberator wrote: Sun Jul 25, 2021 11:10 pm My first post. I didn’t do indexing early with age appropriate AA. Don’t want to psycho analyze myself but my wife and I didn’t turn up the heat on the right AA till we were in our mid 30s which I now know was a big mistake. We always lived well below our means, we have had good incomes and saved a lot. But not being in the market with age appropriate Aa has cost us dearly. My rough calc, probably around 600k! hit to our could be net worth today & counting. I never forget to pat my back for that.

Our residence is fully paid but we still have almost 300k in cash (“high” 2% interest cd/mm). Rest is all in our paid off house. Of what is in the “market” we have 60% stocks, 40 in bonds (total bond, muni & i bonds). still behind in our AA… but We fortunately have maxed our 401k now and also try to max our after tax account which I periodically move to my Roth the mega back door way. So the current income is now scheduled well to go to the right bins.

Question I have is should I DCA the 300k in today’s market? Currently I have set about 2k to be invested every Friday. This probably falls under “don’t time the market” argument and I probably should do just a lump sum jump but I am not sure if that’s correct. I keep reading DCA comments everywhere. Hope some of you will be kind enough to educate this uninformed almost 40 years old!
Lump sum and move your allocation to 50 US / 20 International and / 20 LTT .
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
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ruralavalon
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Re: 35% cash, nearly 40

Post by ruralavalon »

Welcome to the forum :) .

In your mid 30s a plain vanilla 60/40 asset allocation is within the range of what is reasonable in my opinion. It would also be reasonable to go 75/25 as lakpr suggested.

Question I have is should I DCA the 300k in today’s market? Currently I have set about 2k to be invested every Friday. This probably falls under “don’t time the market” argument and I probably should do just a lump sum jump but I am not sure if that’s correct. I keep reading DCA comments everywhere. Hope some of you will be kind enough to educate this uninformed almost 40 years old!
Three years is far too long.

I am in the invest it "all at once" camp. The risk you run by delaying is that the market may be even pricier later.

When investing a large chunk of money, "all at once" has historically worked out better about 2/3 of the time. Please see the Vanguard paper (July 2012), "Dollar-cost averaging just means taking risk later".

Wiki article, "Dollar-cost averaging". “Lump sum investing will always carry a higher expected return, because it immediately moves your funds from asset classes with lower expected returns to ones with higher expected returns. Note that higher expected returns do not guarantee that your actual returns will be higher. According to an investopedia article, studies indicate that lump sum investing has produced higher returns 66% of the time”.

The compromise solution is to invest part in a lump sum now, and the rest in stages. For example, invest 50% in a lump sum now, and invest the other 50% in stages (like an additional 10% on a predetermined date each month for the next 5 months). Don't needlessly agonize over when the best time may be to invest.

Holding on to cash while you wait for a better time to invest is likely to give you a negative real return net of inflation and taxes. I think it is better to invest in something with the reasonable prospect of a positive real return. Market timing (waiting for a good time to buy) is a fool's errand. No one can successfully do that consistently. If you wait for a good day to buy, you will never know if the next day, or the next week, or the next month, or even the next year might be an even better time to buy.

It was always my policy to invest whenever I had money available to invest.

Please read this: "What if you only invested at market peaks?"
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Financologist
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Re: 35% cash, nearly 40

Post by Financologist »

Rear view mirror.. not your friend.

Use the resources here to determine your target AA and go there.

While many will tell you to immediately invest to your target AA, I suggest considering DCA. Not because I disagree that immediate investment to your target AA is expected value maximizing.. rather, given your history it's a lot to ask of yourself to decide on an appropriate asset allocation immediately. DCA will ease you in to an appropriate asset allocation without "shocking the system" in terms of growing into your risk tolerance.

Good luck

Good luck
Financologist
7eight9
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Re: 35% cash, nearly 40

Post by 7eight9 »

In the words of Clint Eastwood, "You've got to ask yourself one question. Do I feel lucky?"

Lump sum typically beats dollar cost averaging.

Except when it doesn't.

Investors who lump summed into the Nikkei in December 1989 regret their decision to this day.
I guess it all could be much worse. | They could be warming up my hearse.
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goingup
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Re: 35% cash, nearly 40

Post by goingup »

You are quite risk-averse. Probably need to honor that. Fighting your nature too much is where things can go really wrong, especially in a market slump.

Why not take the time to understand your investing behavior thus far? You aren't a newbie at this. Read a few books like Morgan Housel's Psychology of Money, or Jason Zweig's Your Money and Your Brain.

You'll get a lot of advice here about what we would do if we were you. We aren't you. :D
Dontridetheindexdown
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Re: 35% cash, nearly 40

Post by Dontridetheindexdown »

There is absolutely nothing wrong with being 35% cash, especially if you are receiving a 2% return as you stated.

We maintain around 50% "cash" in the form of savings accounts, money market accounts, and TSP G Fund (principal guaranteed by the U.S. Treasury).

During the past 12 months, we received just over 1% on that cash, and we have no regrets.

Certainly, we could have accrued substantial gains if that money had been invested in equities, but we could just as easily have accrued losses.

We are delighted to risk 50% in equities, and equally delighted to "lock in our gains," and maintain our asset allocation by re-balancing to cash.

Some of the wealthiest people we have known were 100% cash.

Maintaining significant cash (we refer to our cash position as a "stable asset") is nothing to be ashamed of, at any age.

For us, significant cash assets allow us to be extremely comfortable with equally significant equity assets, which always and everywhere include risk.

I would personally advise anyone to invest not one cent more in equity than you can afford to lose.
tibbitts
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Re: 35% cash, nearly 40

Post by tibbitts »

AvocadoDeliberator wrote: Sun Jul 25, 2021 11:10 pm But not being in the market with age appropriate Aa has cost us dearly. My rough calc, probably around 600k! hit to our could be net worth today & counting. I never forget to pat my back for that.
I'd guess that's average for Bogleheads: financial mistakes (at least mistakes in retrospect) eventually costing $1M or more in today's dollars.
Cucumbers
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Re: 35% cash, nearly 40

Post by Cucumbers »

Where are you getting 2% return on cash?
Zeno
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Re: 35% cash, nearly 40

Post by Zeno »

[quote=Dontridetheindexdown post_id=6140049 time=1627312021 user_id=67770
Last edited by Zeno on Sat Mar 19, 2022 9:51 pm, edited 1 time in total.
invest4
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Re: 35% cash, nearly 40

Post by invest4 »

goingup wrote: Mon Jul 26, 2021 9:54 am You are quite risk-averse. Probably need to honor that. Fighting your nature too much is where things can go really wrong, especially in a market slump.

Why not take the time to understand your investing behavior thus far? You aren't a newbie at this. Read a few books like Morgan Housel's Psychology of Money, or Jason Zweig's Your Money and Your Brain.

You'll get a lot of advice here about what we would do if we were you. We aren't you. :D
An important point to remember as one can not "run away" from themselves. Of course, the potential for change is possible, but I think most often we eventually learn to accept ourselves as we are and continue to navigate the best we can.

Based upon the input from OP thus far for whatever amount is chosen, I would suggest DCA to be completed within a year or so. In light of age and fully paid home, I also think a higher AA would be fine, but only OP / spouse can decide what is comfortable for them.

Best wishes.
Dontridetheindexdown
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Re: 35% cash, nearly 40

Post by Dontridetheindexdown »

WyomingFIRE wrote: Mon Jul 26, 2021 10:48 am
As to the "afford to lose" point, I agree with that statement as to individual stocks because companies go out of business. I certainly don't agree with that statement, however, as to the types of broad market funds encouraged by Bogleheads. If my equity ETFs were to go to zero and stay there, that presumably would be an economic collapse scenario that is the type of highly remote risk I choose not to address in my investment plan for the same reason that my retirement plan doesn't address the contingency of a city- or civilization-ending meteor strike. FYI: "[a]ccording to NASA, the probability of an asteroid capable of destroying a city striking Earth is 0.1% every year," which is certainly non-trivial. https://interestingengineering.com/what ... oid-impact. I just don't lose sleep worrying about such matters, even though I accept that they could occur.
Reason to not have any more stock than you can afford to lose is not because equities may go to zero.

It is because most people are reluctant to sell equities at a loss.

In that case, stock investments may become stranded assets, for much longer time than we might prefer.
lakpr
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Re: 35% cash, nearly 40

Post by lakpr »

WyomingFIRE wrote: Mon Jul 26, 2021 10:48 am (I wish I knew how to insert images here, but alas I don't; I wanted to cut and paste in the chart of results from portfoliovisualizer.)
After running your analysis, you can click the "Link" button that appears next to "Portfolio Analysis Results", which would update the URL in the address bar, then you can copy paste the URL. I had just done that in another thread, no need to paste images.

Trying to be helpful ...
Joey Jo Jo Jr
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Re: 35% cash, nearly 40

Post by Joey Jo Jo Jr »

OP you could have been writing about me. I had to resign myself to the fact that the risk of missing appreciation deserves similar respect to the risk of loss. With that in mind, somewhere between 50/50 and 75/25 stocks versus bonds (really treasuries IMHO) is what makes sense to me, with some emergency and short term needs funds in cash as well. Where you end up in that range is probably a function of general risk tolerance, maybe age (I’m not really convinced of that myself), and maybe even how you feel about the market (though many will tell you not to “time” the market).

As to whether to lump sum or not, I might just split the difference and that way whatever you choose will only be half wrong LOL. Also, the back end payments will give you a chance to rebalance and/or adjust your AA without (as much) selling.
Zeno
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Re: 35% cash, nearly 40

Post by Zeno »

lakpr wrote: Mon Jul 26, 2021 12:38 pm
WyomingFIRE wrote: Mon Jul 26, 2021 10:48 am (I wish I knew how to insert images here, but alas I don't; I wanted to cut and paste in the chart of results from portfoliovisualizer.)
After running your analysis, you can click the "Link" button that appears next to "Portfolio Analysis Results", which would update the URL in the address bar, then you can copy paste the URL. I had just done that in another thread, no need to paste images.

Trying to be helpful ...
Thank you so much, I very much appreciate it.
Topic Author
AvocadoDeliberator
Posts: 73
Joined: Sun Jul 25, 2021 10:15 pm

Re: 35% cash, nearly 40

Post by AvocadoDeliberator »

Op here. Thanks a lot everyone! I decided to invest it in large sums trying to pick the dips that I “felt” were big ones. If I do the math based on the period I was investing during my sold called DCA, I think it went in the wrong direction or stayed about the same. In the end I am through most of it because of the large chunks. Would I try to time again I.e. do DCA, probably. Just in the nature but still happy that I am now more invested in the market than before. Thanks again.
carminered2019
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Re: 35% cash, nearly 40

Post by carminered2019 »

Good secure job and a paid off house, your fear of the markets should be your least concern.
I paid off my house at 32, saved about 1 year for EF then put everything in 100% equities until I retired at 50 then added bonds.
aristotelian
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Re: 35% cash, nearly 40

Post by aristotelian »

No idea if now is a good time to lump sum. I assume if you buy lump sum you will get market price based on current expectations. DCA may be a good idea if you are uncertain of your risk tolerance not because now is a good or bad market.
dan7800
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Re: 35% cash, nearly 40

Post by dan7800 »

Think of any mistakes that you make as tuition. We've all made mistakes.
tvubpwcisla
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Re: 35% cash, nearly 40

Post by tvubpwcisla »

Nothing wrong with being patient. Especially after how this year has started.
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