Strategy to entering the market with a lump sum [Uruguay]

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WhatAView
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Joined: Fri Sep 17, 2021 5:33 am

Strategy to entering the market with a lump sum [Uruguay]

Post by WhatAView »

Hi, everyone.

I have 250k in cash to enter the market.
I'm 35 years old, no debt, I own my house, 12 months reserve fund, I mean that cash is 100% available to invest.
I am planning to add USD 500 - USD 1000 each month after the initial sum is invested.
My objective is retirement.

I have two things on my mind:
  • I am not fully prepared to understand everything regarding investments, (I am reading and learning a lot, several hours a day)
  • I think I cannot wait until be fully prepared, it will take some time
That said, I also understand that my money is losing value over time.
My portfolio will be 70% Stocks 30% Bond (both ETFs) (maybe 80/20)

Decisions, decisions, decisions ...
  • Entering the market at once
    • At the current high I have the fear that if I enter the lump into the market, it can correct in the short time, losing a lot of value in my portfolio.
  • DCA / VA
    • But if I implement DCA / VA I sense the loss against inflation with the rest of the cash.
I am open to any advice!

And also I have specific questions:
  • Is there any instrument (like bonds), to convert my cash on and then sell them every month to implement my DCA / VA strategy?
  • There is any resource to backtest my strategies?
Kind regards! :beer
John.
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LadyGeek
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Re: Strategy to entering the market with a lump

Post by LadyGeek »

Welcome! Based on "USD" in your post, I moved your thread to the Non-US Investing forum. What is your home country?

Acronyms:
DCA = Dollar cost averaging
VA = Value averaging

May I suggest you post your portfolio information in this thread using the My portfolio: seeking advice format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask them here.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Topic Author
WhatAView
Posts: 13
Joined: Fri Sep 17, 2021 5:33 am

Re: Strategy to entering the market with a lump

Post by WhatAView »

Hi! Thank you for your help:
I am going to try to adjust to the seeking advice format:

Country of Residence: Uruguay

International Lifestyle: No movement planed.

Currency: USD

Emergency funds: 12 Months

Debt: No debt

Age: 35

Desired Asset allocation: 70% stocks / 30% bonds maybe 80% stocks / 20% bonds
Desired allocation to stocks outside your of country of residence: 100% of stocks

Pension: Minimum, I cannot count on this to keep my lifestyle
_______________________________________________________________

I have USD 10k on cryptocurrency.
I own my house
USD 250.000 cash
_______________________________________________________________
Questions:
1. How to enter the market: A lump (250k once), Over time (using DCA/VA).

2. How to backtest the different above options .

3. Can I invest the cash in some asset (like bonds) while performing DCA?

I hope the post structure is ok this time.
Thanks for your time and advice.
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Eagle33
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Re: Strategy to entering the market with a lump

Post by Eagle33 »

There is a third approach besides DCA and lump sum -- half lump sum now & DCA the other half over time.
mikejuss
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Re: Strategy to entering the market with a lump

Post by mikejuss »

Fire away all at once, OP. Whether the market is high or low right now won't mean in a fig in a decade or two. If your tolerance for risk is slightly less than before--as you have a windfall on your hands now--just adjust your overall asset allocation to reflect your enhanced net worth.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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arcticpineapplecorp.
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Re: Strategy to entering the market with a lump

Post by arcticpineapplecorp. »

https://www.bogleheads.org/wiki/Dollar_ ... s_lump_sum
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,[5] studies indicate that lump sum investing has produced higher returns 66% of the time.

Some investors are willing to sacrifice some expected return in order to reduce their potential loss, knowing that higher expected return come with higher potential loss. For those investors, dollar cost averaging is superior because it reduces the chances of investing just prior to a market drop. If you instead decide to invest 1/6th of the money each month for 6 months, you will reduce the chance of buying just before a crash. Instead, as the price fluctuates each month, you will buy more shares when the price is low and less when it is high. In such volatile markets your real return can be higher then the normally expected return.

Many new investors are more interested in minimizing their potential loss, and it's important that an ill-timed market drop not scare them off from investing in the future. Many experienced investors are more interested in maximizing their expected returns. You can also decide to split the difference, where you invest half immediately and the other half over 6 or so months.
you should always be prepared to lose a certain amount of money you have invested. The average intrayear decline for stocks has been 14% since 1980.

Sure losing 14% on $2500 is a lot less than losing 14% on $250,000 but my point is that at some point you're going to have the $250k invested and the average intrayear loss will still always be 14%. So you're going to have to deal with losing 14% on average on your $250k on an ongoing basis, not just when you lump sum.

therefore you should just invest the money and deal with whatever losses come, because you'll have to deal with them anyway after you get all the money invested.

Image

someone wise once said, "In order to get the return of the stock market you really do have to take the risk."
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Beensabu
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Re: Strategy to entering the market with a lump

Post by Beensabu »

WhatAView wrote: Fri Sep 17, 2021 6:44 am My portfolio will be 70% Stocks 30% Bond (both ETFs) (maybe 80/20)
If you are afraid of lump sum investing into this asset allocation, then it is too aggressive for your risk tolerance.

You do not have to force yourself to exceed your risk tolerance through DCA (it's a mind trick, you're tricking yourself into thinking you're taking less risk because you take longer to ratchet up the risk over your acceptable level).

What is the asset allocation at which you would be comfortable immediately entering the market all at once?

See the table at note 2 at the link above. That shows you the loss to expect with each asset allocation if stocks fell by 50%. What level of loss could you tolerate watching happen either quickly or gradually over the course of weeks/months/years after entering the market all at once? What potential level of loss in the short to mid (and perhaps long) term do you find acceptable? That will tell you the level of risk you are actually willing to bear.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
AquaBliss
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Re: Strategy to entering the market with a lump

Post by AquaBliss »

Please check with your physician before entering the market with a lump. It could be malignant.
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LadyGeek
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Re: Strategy to entering the market with a lump sum [Uruguay]

Post by LadyGeek »

^^^ :) This is a joke. To our non-US members - The term "lump" is an American slang in the medical field. Google "lump medical terminology" for an explanation.

I have retitled your thread to indicate Uruaguay. This will attract the attention of our members who can help you the best. I have also changed "lump" to "lump sum" to clarify the meaning.

If you wish to change the thread title yourself, edit the Subject: line in Post #1.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
futurenoodle
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Re: Strategy to entering the market with a lump sum [Uruguay]

Post by futurenoodle »

Honestly congratulations for reaching a great savings amt. in USD.

I’m far from anyone qualified to listen to.. as almost all will tell you, past performance of the market is no indicator for future earnings/losses - but if it helps for your peace of mind about AA and diversification check out the portfolio visualizer tools for the ETFs you plan on investing in..


Remember, your goals are long-term and specifically for retirement… so I wouldn’t worry too much about the short term corrections (they may be the opposite!) at all - as long as you feel comfortable with your asset allocation based on your goals and timeline, and that you feel comfortably diversified.

I trust you have an emergency fund, out of debts, health savings, and reliable income streams that will allow you to part with this liquidity l.

After you make the investment - expect ups and downs and stay the course… discipline, consistency, and compounding interest are your friends.

Happy investing!
Topic Author
WhatAView
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Joined: Fri Sep 17, 2021 5:33 am

Re: Strategy to entering the market with a lump sum [Uruguay]

Post by WhatAView »

Hi, Guys! I want to thank you for your thoughts, advice, humor and time. your responses were super useful to me.

My next step will be building my portfolio, deversified and adjust it based on mi risk tolerance and my time goal.

Thank you so much! See you on other posts.
Laurizas
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Re: Strategy to entering the market with a lump sum [Uruguay]

Post by Laurizas »

WhatAView wrote: Fri Sep 17, 2021 6:44 am At the current high I have the fear that if I enter the lump into the market, it can correct in the short time, losing a lot of value in my portfolio.
Suppose you implement DCA and invest 250 k during next 2 years while market stays flat all the time. The first day of the third year market goes down 30 %. How would you feel? If you would be fearfull then you have you asset allocation wrong (too much stocks).
WhatAView wrote: Fri Sep 17, 2021 6:44 am There is any resource to backtest my strategies?
NICK MAGGIULLI has written about this extensivily
https://ofdollarsanddata.com/how-often- ... ging-fail/
https://ofdollarsanddata.com/dollar-cos ... -lump-sum/
https://ofdollarsanddata.com/lump-sum-investing/
https://ofdollarsanddata.com/the-cost-of-waiting/
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