wait or invest?

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Topic Author
marinero
Posts: 26
Joined: Tue Aug 06, 2019 5:16 am

wait or invest?

Post by marinero »

Hi bogleheads,

I have this allocation:
* 90% IWDA --> iShares Core MSCI World UCITS ETF
* 10% EMIM --> iShares Core MSCI EM IMI UCITS ETF

I became a bit inactive in the past year because I relocated and my partner gave birth, so I accumulated about 180k euro. I have a safe job and alternative incomes.

Should I:
* invest the whole 180k in one go?
* dollar cost avg it over a year or so
* wait by the sidelines
* buy some bonds too?

The valuations still seem pretty high and the interest rates are going to stay high for some time. Would it make sense to keep some dry powder on the side? Also, bonds have done poorly in the past couple of years and strangely last year correlated with stocks.

Any help in light of the current macro context appreciated.

Thank you :)
muffins14
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Location: New York

Re: wait or invest?

Post by muffins14 »

100k now, 20k monthly for 4 months.

No powder
Crom laughs at your Four Winds
goblue100
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Re: wait or invest?

Post by goblue100 »

If you can accumulate 180k in a year then it doesn't really matter how you invest it, your earnings will overcome whatever you do. Statistics show time in market is more important than timing the market, so a lump sum is the most rational move. If you really want then invest 6 equal 30k amounts over the next 6 months.
"Confusion has its cost" - Crosby, Stills and Nash
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JoMoney
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Re: wait or invest?

Post by JoMoney »

Being unwilling to "lump in" to the market may be an indication that your asset allocation is too heavy in whatever risky asset you're unwilling to buy for your risk tollerence.
If that money had already been invested would you sell those assets so you had cash?
Perhaps you should have a persistent cash/short-term allocation that you rebalance with.
If you're certain that your allocation is right, but you just can't pull the trigger because the price changes so frequently, just pick some arbitrary time period to dollar-cost average in over, and know your price will be whatever the 'average' was across that time period.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Topic Author
marinero
Posts: 26
Joined: Tue Aug 06, 2019 5:16 am

Re: wait or invest?

Post by marinero »

Thank you. This is good advice about the perception of the risk I'm taking.

I am 100% stock at the moment. Would you advise I buy some bonds too?
wolf359
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Re: wait or invest?

Post by wolf359 »

Two other ways of thinking about it:

1. The money is already invested. Your asset allocation has 180K euros in cash, in addition to your stock and bond holdings. (Yes, cash is an asset class!) I would make sure you have a sufficient emergency fund, any debt with over a 4% interest rate is paid off, then treat the rest according to your written investment policy statement with regard to rebalancing. (No IPS? Then rebalance and write one.) Also reconsider your asset allocation if you're unwilling to rebalance at once. Perhaps you need something more conservative.

2. What is your time horizon? Do you need this money in the next 5 years, or are you investing it for 30-40 years? Pull up a stock chart for your holdings and switch the time horizon to 30-40 years. On that type of time horizon, does it matter which day you invested? When viewed at that scale, its obvious you would just invest and ride it out.
Topic Author
marinero
Posts: 26
Joined: Tue Aug 06, 2019 5:16 am

Re: wait or invest?

Post by marinero »

dear @wolf359, you made two good points.

I don't need this money in the next 5 years, they are really my retirement fund. You are right in that in a 10-20 year horizon, it doesn't really matter when you put that money in the market. Very good point.

Do you recommend I buy some bonds. Are they still a good thing to have? I read a lot of negative talk. What would be a short term government bonds product?
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JoMoney
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Re: wait or invest?

Post by JoMoney »

marinero wrote: Tue Mar 07, 2023 8:10 am ...
I am 100% stock at the moment. Would you advise I buy some bonds too?
Honestly, I'm grappling with the whole "bonds" allocation myself. For most of my investing life I've been near 100% in stocks. Over the past couple years I had decided I needed to get a "safe" allocation that was more than just my short-term emergency fund. I don't know if or when the money will be needed, but I kind of came around to the idea of a 90/10 allocation of stocks/bonds. I didn't want to sell my stocks to get there though, so I figured I would just do it through diverting new money/savings into those. I've had a hard time doing it though. Going back prior to a year ago, bonds were yielding less than U.S. Savings Bonds and the Stable Value fund in my (U.S.) 401k retirement plan, so that's where I was starting to pile up the cash. Now that interest rates are rising, bonds look more appealing, but I'm having a problem deciding on what bonds are right for me. The easy answer would be to just 'diversify' across a broad-market bond fund, but I'm not comfortable with the duration of those funds, I'm used to keeping my "safe money" short-term and 'safe' ... so I've still mostly been using very short-term money market funds, and tip-toeing into some TIPS funds (I like the idea of inflation indexing now that those have positive real yields...)... but those are what I'm using as a U.S. investor. I'm not sure what options are available to you, or what would suit your preferences and situation.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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enad
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Re: wait or invest?

Post by enad »

In one of the books that Larry Swedroe wrote he mentioned keeping some money in cash as part of your allocation so when there is a dip or a crash you'll be able to buy things on sale. If you are not sure if it's time to invest, perhaps an equal amount every month or 90 days for a year. If you there is a dip, perhaps a little more
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
jg12345
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Re: wait or invest?

Post by jg12345 »

Invest.

Quick one: you do not need money in the next 5 years?
5 years is a bit short, I would expect "I do not need money in the next 20 years"

A short term government bond fund could be Ishares Ultrashort ETF EUR, but you have to tell your base currency actually
HKexpat
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Re: wait or invest?

Post by HKexpat »

enad wrote: Tue Mar 07, 2023 8:32 am In one of the books that Larry Swedroe wrote he mentioned keeping some money in cash as part of your allocation so when there is a dip or a crash you'll be able to buy things on sale. If you are not sure if it's time to invest, perhaps an equal amount every month or 90 days for a year. If you there is a dip, perhaps a little more
This kind of market timing never works. There's no guarantee that stocks will go lower than they are today in the next 50 years. Because if we knew that would happen, why buy stocks at all? Just keep everything in cash until that happens and buy at that point. Moreover, even if stocks did drop to a lower level... when is the right time to buy? There's always a reason why things will get worse and why you should hold off just a little longer... and before you know it, the market has rallied, and you have missed the dip.

Time in the market beats timing the market.
Valuethinker
Posts: 49021
Joined: Fri May 11, 2007 11:07 am

Re: wait or invest?

Post by Valuethinker »

marinero wrote: Tue Mar 07, 2023 7:51 am Hi bogleheads,

I have this allocation:
* 90% IWDA --> iShares Core MSCI World UCITS ETF
* 10% EMIM --> iShares Core MSCI EM IMI UCITS ETF

I became a bit inactive in the past year because I relocated and my partner gave birth, so I accumulated about 180k euro. I have a safe job and alternative incomes.

Should I:
* invest the whole 180k in one go?
* dollar cost avg it over a year or so
* wait by the sidelines
* buy some bonds too?

The valuations still seem pretty high and the interest rates are going to stay high for some time. Would it make sense to keep some dry powder on the side? Also, bonds have done poorly in the past couple of years and strangely last year correlated with stocks.

Any help in light of the current macro context appreciated.

Thank you :)
For comfort. I would dollar cost average it, over say 9 months (or 12). Or do half now, and half in say 6 months time.

The correct theoretical answer is just to invest it.

The point made here about risk tolerance is key. If you really can't stomach buying 180k EUR in equities all at once, then you probably have overestimated your risk tolerance.

If you consider that say another virus broke out, that markets could fall 50% almost instantly. Or another financial crash. Or a war somewhere else in the world. Or an escalation of the Ukraine war that drags in NATO in some way... you have to willing to accept that kind of volatility from stock markets. Because periodically they produce it.

Otherwise you hold more bonds. Monevator blog takes you through some sample portfolios. OK UK oriented but many of those funds also have EUR equivalents (slightly different units). A warning: you need a significant weighting of bonds (at least 25%) to make much difference on volatility. It was a rule of thumb here that (developed) stock markets could go down 50%, and bond funds could go down 10%. In 2022 bond funds did worse than that.

If you ever plan to return to Europe you need to understand how taxes work on your return. For example the cost basis of capital gains taxes.

For tax reasons, many of us avoid Accumulation fund units or ETFs - outside of pensions. In the UK, you would be required to pay tax on dividends that you had not received as cash (because they were rolled up into the NAV of the Accumulator/ Accumulation funds) and you wouldn't have good paperwork from the fund to let you keep track of that. So you own Distribution funds & ETFs (ie reinvesting the dividends manually, which costs a transaction fee each time). But other countries have different tax rules.
User avatar
enad
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Re: wait or invest?

Post by enad »

HKexpat wrote: Tue Mar 07, 2023 9:18 am
enad wrote: Tue Mar 07, 2023 8:32 am In one of the books that Larry Swedroe wrote he mentioned keeping some money in cash as part of your allocation so when there is a dip or a crash you'll be able to buy things on sale. If you are not sure if it's time to invest, perhaps an equal amount every month or 90 days for a year. If you there is a dip, perhaps a little more
This kind of market timing never works. There's no guarantee that stocks will go lower than they are today in the next 50 years. Because if we knew that would happen, why buy stocks at all? Just keep everything in cash until that happens and buy at that point. Moreover, even if stocks did drop to a lower level... when is the right time to buy? There's always a reason why things will get worse and why you should hold off just a little longer... and before you know it, the market has rallied, and you have missed the dip.

Time in the market beats timing the market.
Bogle said that dollar cost averaging is a worthwhile strategy to get into the market and since one doesn't know which direction the market will go tomorrow it can help someone who is concerned. They won't get the lowest price or the highest price, rather the average price.

In my bond allocation I keep a percentage in cash which at the moment is earning 4.2% which actually beats many bond funds.

This is not market timing since you're investing a fixed amount at a fixed internal, and having cash on hand to buy the same investments you bought before when they go on sale is prudent.

OP, who knew that Dollar Cost Averaging is a contentious issue. Do what makes you sleep at night.
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
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arcticpineapplecorp.
Posts: 15080
Joined: Tue Mar 06, 2012 8:22 pm

Re: wait or invest?

Post by arcticpineapplecorp. »

marinero wrote: Tue Mar 07, 2023 7:51 am Hi bogleheads,

I have this allocation:
* 90% IWDA --> iShares Core MSCI World UCITS ETF
* 10% EMIM --> iShares Core MSCI EM IMI UCITS ETF

I became a bit inactive in the past year because I relocated and my partner gave birth, so I accumulated about 180k euro. I have a safe job and alternative incomes.

Should I:
* invest the whole 180k in one go?
* dollar cost avg it over a year or so
* wait by the sidelines
* buy some bonds too?

The valuations still seem pretty high and the interest rates are going to stay high for some time. Would it make sense to keep some dry powder on the side? Also, bonds have done poorly in the past couple of years and strangely last year correlated with stocks.

Any help in light of the current macro context appreciated.

Thank you :)
you should determine your asset allocation and just invest accordingly.

that way there's no guessing about valuations nor market timing when might be a better time to invest.

if you're 100% stock with your investments now and you're not thinking about investing this new money the same way, why are you invested with the old money that way? Isn't the old money taking the same risk you're not wanting to take with the new money?

so first figure out your need, ability and willingness to take risk and match your asset allocation to that:

How much risk do you need to take: https://www.cbsnews.com/news/asset-allo ... -you-need/
How much risk do you have the ability to take: https://www.cbsnews.com/news/asset-allo ... -you-take/
How much risk do you have the willingness to take: https://www.cbsnews.com/news/asset-allo ... tolerance/
How to deal with conflicts between the need, ability and willingness to take risk: https://www.cbsnews.com/news/asset-allo ... ing-goals/

Image

The answer to your market timing questions:

Q: When Do I Buy?
A: When you have the money.

Q: When do I sell?
A: When you need the money.

anything else is market timing because if you have money you plan to invest but don't it's because you're making predictions about the best/better time to invest and if you sell when you don't really need the money it's because you're making predictions about the future which is unknown in advance.

I'll let Larry Swedroe have the final word so you don't have to take my word for it:
Here is another way to think about DCA. Assume that staying fully invested in equities is suboptimal, meaning you should sell all your equities and then DCA back into the market. At the next investment period you have some money in the stock market already. While you planned to periodically reinvest in the market, you also determined that staying fully invested is suboptimal. You run into this difficulty: Do you continue to buy equities, sell your existing holdings, or do both? Logicaly, DCA cannot be effective...

While DCA is not an optimal investment strategy, it has value when facing the "lesser of two evils," that is, when an investor simply cannot "take the plunge" and invest all at once for fear of what could happen to the stock market. Fear causes paralysis. If the market rises after they delay, they think, "How can I buy now at even higher prices?" If the market falls, "I can't buy now. That bear market I was afraid of is here." Once deciding not to buy, how do you decide to ever buy again?

The Only Guide You'll Ever Need for the Right Financial Plan, by Larry Swedroe, page 182, appendix B
if you have a plan, just follow it. DCA makes one feel good because if they have some (but not all) invested and the market goes up, they made money (just on what was invested, not all). If the market falls, they feel smart because they didn't lose more money (because it wasn't all invested).

Larry says:
Investors and advisors do not always base decisions on logic or evidence. Emotions, such as fear often play a far greater role in decision making.
But make a plan, write it down and stick to it no matter what.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
IcedTea
Posts: 92
Joined: Thu Mar 12, 2020 4:12 am

Re: wait or invest?

Post by IcedTea »

arcticpineapplecorp. wrote: Tue Mar 07, 2023 6:48 pm
(...)

Q: When Do I Buy?
A: When you have the money.

Q: When do I sell?
A: When you need the money.

(...)
Great post. Thank you!
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