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In a prior post I explained that we were in the process of doing account transfers into Fidelity. As good fortune would have it, nearly all of our money was sitting in cash when Liberation Day caused the market to tank.
My quandary was how to get back into the market. I asked what would you do; dollar cost average (DCA), or take the plunge. Replies were mixed.
I bet on import taxes creating havoc for the balance of the year, and chose to DCA. I bet on the wrong horse, as the market has broken one record after another. We have been missing out on some action since mid April.
Our current allocation is 24% equities, 33% bonds, 43% cash. I still feel like there’s danger hiding around every corner, and if disaster strikes, I’ll jump back in like my cat Sophie pouncing on a spotted lantern fly; she is a ferocious predator😾, but I digress. Just to be clear, my target equity allocation will be between 50 and 60%.
The consolation prize has been 4% interest earned on the cash, though the rates may be changing soon.
Those of you who implored me to jump back in may now smugly say, “I told you so you big dummy”.
I’m not a market timer so I’m all in all of the time
LH, yep, so am I.
But I can see that dollar cost averaging can help with the idea of “regret minimisation”. Going all in requires a certain leap of faith, and if someone is finding that a little too confronting, then DCA is a way to more gently go about things.
Comments:
I have done several transfers and always used in-kind., which means never in cash. Our CD/MM/CASH has been under 0.5% for decades, unless I’m out at 99+% in Schwab MM.
I have been using timing pretty well over the years because I decided many years ago to search it. It took me “only” 10 years to master it.
I’m right about 60%. When I’m wrong, I’m out for about up to one week. When I’m right, I’m out for several weeks to months.
Schwab has 99+% of all the money we have, including all brokers, banks, and credit unions.
See
2025: https://ibb.co/Xr7SJXq4
2022: https://ibb.co/xKxHBszK
2020: https://ibb.co/NvgmZgG
Performance since retirement in 2018: https://ibb.co/zT6QGzSs
If you never try other methods, you will never find them.
Dan, Don’t be so hard on yourself. We all make mistakes. Most of us make far more crucial errors. People love to give advice, But the more people you ask for advice the more likely you will end up completely confused because you will get conflicting and opposing answers. Then, in addition to your original conundrum, you will also have the problem of which advice to take.
Find a few trusted sources or even one trusted friend who only wants the best for you.
Marjorie, thanks for those kind words. Your posts always put a smile on my face, even when you endeavor to set someone straight.
My one best friend is Chris, my spouse, she’s a survivor and has great instincts. Together, we make a great team. I could not have achieved the life I now enjoy without her.
Dan, sounds like you found a terrific combination. And for backup, you can always run things by Sophie! LOL
As I mentioned, I had my retirement money out of the market out of the market for a couple of weeks when I was moving it from Fidelity workplace accounts to my Schwab rollover IRA. I hand-delivered the checks I’d received in the mail at my local Schwab office. This was in late July, and you might recall that Aug 1 was another purported tariff deadline. I asked the Schwab guy if he were me, would he keep the money out of the stock market until after Aug 1, and he said, “I would.” I put the funds into a money market for a couple of weeks and then moved everything into a target date fund (Vanguard 2035). Good enough for now, and the timing worked out reasonably well.
With two choices, it is either-or and the odds are 50/50. “He who hesitates is lost”, but “Look before you leap.”
In 2018 Ben Carlson wrote an article: A Lost Decade of Dollar Cost Averaging. “Investors who dutifully put money into the stock market on a periodic basis over the decade ended in 2009 would have felt dejected when looking at their statements.
If you started dollar cost averaging $500/month into the S&P 500 in January of 2000, by December of 2009 you would have invested $60,000 in total. This strategy would have netted you a whopping $64k and change, not much more than the amount saved. By way of comparison, simply investing that same $500/month in one-month t-bills would have given you more than $67k.”
Those who think it is all going to hell in a handbasket might consider that either method, lump-sum or DCA might not do well over the next decade. In the past few months, perhaps only one bullet was dodged.
“I bet on import taxes creating havoc for the balance of the year,…”
My feeling is–and I freely admit, I could be wrong–those taxes ARE creating havoc, but just not in the predictable way or within the precise time frame that you were expecting. My reaction wouldn’t be “I told you so dummy”, but something like “you ought to know better by now.”
As others have stated below, there will be ample buying opportunities at some point. But patience may be required; if it helps any, just pretend that it’s September 2021, and you’re sitting on a big pile of cash. Maybe it is, and maybe it ain’t, but at some point it will be. Hang in there!
Nobel prize winning economist Harry Markowitz said “I should have computed the historical covariances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it—or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities”. He said this after the 1987 stock market crash. While this is about portfolio allocation it reveals he made investment decisions based on minimizing personal regret and ability to sleep at night……I believe if you can sleep at night then you made the right decision. Maybe Harry would have gone with 50% lump sum and 50% DCA?
My wife and I have also been making financial plans for future retirement, transferring from 401k’s to IRAs and the process does indeed present a conundrum that you have outlined. My wife introduces a healthy dose of skepticism into the conversation and while I was quick to move my 401k back into the market, we only recently completed hers, so I guess we inadvertently ended up closer to the ‘posthumous’ Markowitz approach. Indeed, our portfolio allocation has by design (not based on Markowitz) now shifted to 50% bonds, 45% stocks and 5% Bitcoin with a goal of being overall quite defensive but with a risk asset within Roth IRAs that can potentially add outsize gains. To date we have harvested Bitcoin gains so that we stay within 5% and our original investment has been returned to our stock portfolio of diversified, low cost index funds. I know the Bitcoin approach may garner some down votes but it has worked so far for us (and I too was a BTC naysayer for years).
I have the same reaction to this I had to the original post. If you were happy with your asset allocation before you moved the money, why would you change it? And if you weren’t happy, why hadn’t you already changed it?
Grant, if I were going to invest in BC, I would probably do it exactly as you have. Your approach is deliberate and disciplined. Now you’re playing with the casinos money. Good for you. I hope you don’t score any red arrows. Thanks for your honesty.
Thank you Dan.
So far ^1, which begs the question, is it one upvote or 10 downvotes and 11 upvotes or …..😊
Precisely!
This reminds me of two of my favorite stories:
At the end of his life someone asked John Bogle about his asset allocation. He said he was 50-50 stocks and bonds. He figured out that was the right allocation because half the time he thought he needed more stocks and half the time more bonds.
Second, there was an investor who asked for J.P. Morgan’s advice because he was so nervous about how much he held in stocks that he couldn’t sleep. Morgan said, “sell to the sleeping point.”
I had great respect for Bogle, and he was a powerful influence on my investing. But he advocated for “110 minus age for stocks” and I
recall he was 89 when he passed.
Perhaps Morgan’s advice might be modified to “sell or buy equities until your allocation reaches the sleeping point”? Sounds clumsier but maybe more useful.
I mentioned on this site (probably not in response to your post) that I actually bought the dip during the tariff panic. Probably one of my rare market-timing wins.
But, at this point, I think your strategy is sound. With valuations as high as they are we’re going to see another pull-back at some point. Just keep those cat-like pouncing powers at the ready and you’ll scoop up bargains in the equities bin.
I just rebalanced to 75% stocks/25% bonds last Monday. We’re about two years out from retirement, so even thought I’m tempted to let it ride at my previous 90% stock allocation, I’m following Bill Bengen’s research and going with 75%.
Our investments are up 406% (including contributions) since I started a spreadsheet at the end of 2016.
I thought I had responded to your post but couldn’t find it.
My thought would have been to reinvest at the same allocation as you had previously as if it had been invested all along and you would be in roughly the same place as when you pulled the money (you actually would have been buying the equities at a discount).
But (relating to the discussions below) I might in fact just being a “Monday Morning Quarterback.” Do you understand that “Americanism” Mark?
Kind of weird Dave, I also looked but couldn’t find it.
I don’t remember if I commented or merely thought you should put everything back in. But either way, I told you so you big dummy.
I love it! Thanks Brent.
Dan, thanks for your honesty. Monday’s market is still a mystery, and you may yet turn out to be a guru as you move to 60% stocks.
Edmund, you are always a kind voice. I can’t wait to dial back up to 60%, so I can get back to “don’t just do something, stand there”.
Nice article
To whom should we credit these two wise sayings?
1. “It is hard to be right once, but nearly impossible to be right twice.”
2. “It’s not about timing the market, but about time in the market.”
I also came across this supporting insight:
Bill, that’s totally logical, we have all been around long enough to know that’s true. Yet here I am sitting on a pile of cash.
I am not a scaredy cat when it comes to bad markets.I think the sin I committed was allowing my opinions to overrule good judgement. I didn’t like the cause of the turmoil, I reasoned that it was going to be a factor for the foreseeable future. I’m not placing the blame on those events; I am taking ownership of my own bad decision.
I asked those smart people at ChatGPT the lump sum vs DCA question and it provided the same answer as William has above in his supporting insight. It’s just so hard to do. But good to have you back in the game, Dan!
Dan, I posted something similar about excess cash I had after purchasing an annuity. I returned the capital to Vanguard Developed World near the end of July as a single transaction. I’m glad I picked that path and didn’t faff around with DCA. I just checked—not a kick in the ass of a 4% return, lol. Although it’s worked out okay on this occasion, without a crystal ball, it was just a lucky guess on my part.
Mark, what can I say? I guess I’m just a faff up. Had I made a better bet, I could have used some of the proceeds to purchase some tooth wrack for some thalassotherapy.
See, I’ve been studying my Irish. For now I’ll call it Ameirishglish!
But here’s what really cracked me up, I ran everything through AI and received the following result;
AI Overview
The request “Tooth wrack for some thalassotherapy I’ve been studying my Irish. For now I’ll call it Ameirishglish” contains a playful and creative combination of phrases. It refers to a type of seaweed, a specific spa treatment, and a mix of languages. The humor and wordplay lie in the unexpected juxtaposition of these topics.
“Tooth wrack for some thalassotherapy”
This phrase is a creative misinterpretation that connects two unrelated concepts.
“Ameirishglish”
This is a portmanteau (a blend of words) combining “American,” “Irish,” and “English.” It is a humorous way for a person studying Irish to describe their new linguistic hybrid. The speaker is suggesting they are learning Irish but for now, the result is a quirky, personalized mixture of all three languages.
Who ever woulda thunk I’d ever create a portmanteau?
Well now, aren’t you the clever clogs with your fancy portmanteau! Though I have to say, getting an AI to mansplain your own joke back to you cracked me up 🤣 You’re a pure melter! I think you might be part Irish – you’ve already mastered the art of making a simple reply longer than a wet weekend in Donegal.
Oh man, I’ll be A.I.ing all morning long now….
Dan, this is one of the best entertaining articles with Mark’s added humor.
Olin, I agree. Mark has been a great addition both for his sincerity and humor.
Dan, it sounds like your loss aversion has kept you from getting to your equity allocation target sooner. But you’ve already followed Warren Buffet’s most famous rule:
“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
If missing out on past returns feels unpleasant, Warren Buffet has another reminder: “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.”
Thanks Quan, those Buffet quotes are indeed relevant to my situation.
I can’t remember if I responded at the time, but I think I probably would have said DCA. So I would also take the loss.
But your article does reinforce that nobody can time the market. Ultimately we have to pick a strategy, implement it, then ride it out. Can’t win ’em all.
Yes sir. If there are any market timer wannabes out there, please learn from my story.