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Should I invest a large sum of cash into a BEAR market

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  • Should I invest a large sum of cash into a BEAR market

    Hello WCI crew!

    I just recently fired my financial planner after years of suboptimal service and a recent realization: Much of my account contributions over the past yr were left in cash! (I know I should have been on him more--lessons learned). I have 150k in various Roth and Taxable accounts and have close to 40k in cash. I'm a little nervous throwing it all into the market now...this divergence between the true Covid economy and the hot market is really troubling in my mind. I am working on my financial plan and plan on investing 70/10/20 in passive index funds, bond funds, and REIT funds, but would appreciate any insight you all have. I'm 42, been in practice 6 yrs as a surgical sub-specialist so I will be saving for a while. Should I:

    1) Dollar cost average over the next 12 months by making monthly purchases with my cash holdings in addition to my monthly contributions?
    2) Dollar cost average over the next 12 months by making larger quarterly purchases with my cash holdings in addition to my monthly contributions?
    2) Get all in the market now
    3) Wait for the next correction and throw it all in then
    4) Temporarily suspend my normal monthly contributions and put the money toward my mortgage and just use my reserves for my monthly contributions?

    Thanks all for your insights and experience.



  • #2
    The true answer to the question requires knowing the future, and this is, of course, impossible.

    I have a policy in place that has served me well in the past when I have received windfalls (ie. bonuses, inheritances, sale of business or other large asset, etc.), and your situation would qualify as a "windfall" of sorts. It is best to have a well-thought strategy for these periodic windfalls so that you are not stressing over it, trying to judge whether we are in a bull/bear market, whether my debt level is high/low, whether my practice income is trending higher/lower, etc.

    First, I set aside some money for expected large expenses that I can foresee over the next 12 months: remodeling, big international vacation, college tuition, home downpayment, car, in law support, etc., if there are any.

    Then, of the remaining capital/cash, 1/3 goes into my asset allocation immediately, and the remaining 2/3 goes into my asset allocation over the next 6 months. If I had some debt like a mortgage (I have not had in 10 years), I might have allocated up to 25% toward the debt, and then 25% into the allocation now and 50% into the asset allocation over six months. That's my strategy, now create your own with the consideration that some version of this scenario will present itself repeatedly into the future.

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    • #3
      1.) Reasonable option.
      2a.) Reasonable option.
      2b.) Reasonable option.
      3.) When is the next correction and what do you consider a correction? The next correction might see the stock market drop all the way to where it is now. Who knows. This option will take the most moving parts to go right but you can't control the moving parts and you're throwing darts at a board guessing.
      4.) Given the low mortgage rates I would favor investing over aggressively paying off a mortgage but everyone is different.

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      • #4
        The asset allocation you describe is reasonable. If left at a general level of detail, investing the stock portion in the market now would technically be right since you expect the market to be higher in 15 years than it is now. But in practice most people would do some sort of phased investment similar to what VagabondMD described. Either is fine. The important thing is the commitment.

        However, I think your concern about market all time high’s and the divergence with economic output is worth considering. At minimum I would encourage you to buy the total stock market index rather than the S&P 500 index, because the latter is highly concentrated right now. If you wanted to go a step further, you could overweight small cap value stocks. See https://www.whitecoatinvestor.com/sm...alue-strategy/

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        • #5
          $150k in the accounts I invested. I believe money in the accounts was intended to be invested. After all, seems like in your opinion it should have been invested. You did fire him. Maybe he was waiting for the right time. Do you think your plan is better? If your plan is to systematically deposit and invest, the quickest and only logical fix is use your allocation. That was your plan.

          All other rationalizations seem to involve market timing or emotion. It might, but long term that approach usually does substandard. If you are content with your allocation long term, seems like the $150k cash was a mistake, invest it.

          The $40k is different. Why do you have it? Efunds or due to pandemic? Nothing changed. Keep it.

          Into a Bear Market? How do you know? Emotional investing and forecasting the future will drive you crazy and likely poor results. Try to avoid it.

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          • #6
            Since you are new to DIY I would dollar cost average the cash over the next few months into your asset allocation. I would not worry about a mortgage at 42. Build up your investments.

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            • #7
              Dump your money into the REITs now. REIT market is still a good buy in this economy and hasn’t fully recovered.

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              • #8
                I think it depends on what you are comfortable with.

                In late April this year, I bought 900k in international index funds. Then I got cold feet and sold them a few days later. Then I bought them again. I’ve bought about net 1.8M in the last 4 months which was out of my comfort zone. My purchases were between 50-900k.

                I spent 2.5M on a single property purchase in the past so the index fund purchases were ok. I think they are much more diversified than individual property. I would be sweating it if I was buying an individual property for 2M again.

                The main thing I found is the behavioural fear of it going down, halving or some such, just after you purchase it (which may happen). If you can get over that...

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                • #9
                  DCA monthly over six months, move on. As a surgical sub-specialist this isn't/shouldn't be a lot of money in the scheme of things. Thirty years from now it won't matter what you did.

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