I HAD AN EMAIL from a reader today, asking whether—”with the markets a bit overvalued lately”—he should invest his cash in the stock market as a lump sum or average in over time. It’s a question that almost compels you to start guessing the market’s direction—something none of us can do. What’s the alternative? Think about risk.
My response: “It depends on how much you currently have saved vs. how much more you expect to save between now and retirement. If the former is modest and the latter is significant, I’d invest the cash as a lump sum. If the reverse is true, I’d take it slowly.” The reason: The consequences of a large short-term stock-market decline would be much more severe for someone closer to retirement, who doesn’t have many years left to repair the damage done.
Related: Easing into the Market