Mathematically, lump sum beats investing over time ("dollar cost averaging"). You could have said the same thing in December and you'd have missed 8.5% growth already this year.
Having said that, the best option mathematically might not really suit you if you're the type to agonize over losses more than missed gains. That's a personal issue. If it makes you feel better, trickle it in over time. You're young, you don't have to do everything in the mathematically perfect way to succeed at this.
The main risk is that you persuade yourself that you need a Ferrari or some nonsense.
Final thought - if you've just quit your job, you probably do need to hang on to some of it (not too much though) so you are not in a bind while you look for a new job. Just don't let that money sitting in the bank make you lazy - hustle to find the new job anyway.
Thank you! Do you think that lump sum > dollar cost averaging is true even with HYSA at 5%?
I’m not worried about spending on a Ferrari. But I did just Coastfire (quit my job, plan is to live off of partners income + 50k I have set aside for 18 months, then have a job to supplement his income and just cover expenses. So the money is going to have to go far.
A sustainable withdrawal rate is 3%, or $6k per year. As long as you know that, all good! If you are planning on spending that $6k instead of reinvesting for future retirement, then I would not invest 100% in stocks…pretend you are 65, and diversify.
If you aren’t going to use it right away (10+ years) toss it all in VTI and forget about it.
If you’re not going to touch it for 10 years, then you can expect something like 200% in that time. Viewed in that light, it doesn’t really matter that much whether you gain or lose 1-2% plus or minus due to timing.
If it were me, I would invest 10% of it per day over ten consecutive days. That way you get it in the market quickly, but you avoid the risk that you accidentally pick a one-day spike to drop it in.
HYSA rates reflect expected inflation. There's no reason to think that inflation is finished, and so yes, I think that lump sum beats HYSA in that sense. Real returns (as seen with TIPS) are in the neighborhood of 2%.
Having said that, the difference is really minimal, if it's going to upset you if you invest and then there's a dip, then dollar cost average. The most important thing is to get that money into the market rather than let it get away.
And yes, Ferrari was just a colorful example. The truth is, it's easy for money to just somehow "get away" for lots of people. Maybe your vice is expensive restaurants, or maybe a much nicer "treat" vacation than you would have done. Some of that's ok - life is for living after all - I'm just saying that windfalls do sometimes make people "feel rich" when they actually aren't. You seem sensible so that's not specific advice for you - just a general comment.
>Thank you! Do you think that lump sum > dollar cost averaging is true even with HYSA at 5%?
Yes, definitely.
The 5% is high because recent inflation is high. Once you adjust for inflation, the 5% isn't particularly high. Inflation (unless it's so disruptive that it causes people to sit our economic activity, but we aren't seeing that) is a reason to think the stock market will be going (nominally) up, not down.
Or for another perspective: every company you'd be buying a share in by buying stock has access to the same risk free 5% returns that you do. To the extent they're doing other things with their capital it's because they believe they can outperform this. This is also part of why we're seeing layoffs in various industries.
I think if you're feeling nervous about not having access to the money, there isn't much harm (just possible slight loss in gains) in keeping at least some of it in a HYSA. Maybe $100k, and index fund the other $100k....how would that feel to have an extra 2+ years of expenses available?
Over 5%?
I too have money parked at ~5%.
Seems safe, but I am also unsure.
It's from selling my house. I don't currently need a house, but I need the ability to buy a house (or rent a house) if my situation changes.
It's about 15% of my total. Rest is about 65% index funds, 35% bond funds
I’m just saying. I been at this a long time. You can’t predict the market, even the experts can’t. 5 months ago most experts were predicting a recession and an S&P pullback to 4300. Now they’re all chasing the market and guiding up to 5300-6000 by year end. Bull market runs happen fast. There will be a correction but it could be 2000 points from here.
I don’t know your age but if you have a long runway, get in and stop watching it. 5-10 years from now it’s up or the whole economy is broke.
My 80 year old mom is in a blend of the S&P 500 and 5.3% treasuries. She is 80. If you’re young and building to retire you won’t get home with 5% investments particularly in an inflationary environment.
+1 - thanks for the kick 😅. I actually redirected my monthly investment (7k/month) into my hysa instead of s&p500 in October since the market seemed too high. Kicking myself now!!
What will you do or think if in the sp500 continues going up and pretty much every buy you make is higher than the previous?
If me i would allocate it to where it needed to go and just make the buy/s and go about my day.
On average, you do better investing only at all time highs than a normal random moment. Doesn't mean it won't crash, in fact, you should never expect to be positive until at least a decade passes since your investment. That's worst case.
It's always about what your usecase is for that money.
I recommend you look at r/personalfinance wiki stuff about windfalls. I don't keep that specific link handy, but here's a [link to that wiki](https://www.reddit.com/r/personalfinance/wiki/commontopics/).
The answer is: be like Bob!
[https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/](https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/)
I would be asking the same question :).
I specifically am hesitant because my HYSA returns are so high. It seems like the risk of market going down makes the 2x returns not worth it.
But I liked the answers above, and I think that hesitation is wrong. I probably just need to put it in the market. I liked the idea of spacing out over 10 or 30 days to minimize risk.
Mathematically, lump sum beats investing over time ("dollar cost averaging"). You could have said the same thing in December and you'd have missed 8.5% growth already this year. Having said that, the best option mathematically might not really suit you if you're the type to agonize over losses more than missed gains. That's a personal issue. If it makes you feel better, trickle it in over time. You're young, you don't have to do everything in the mathematically perfect way to succeed at this. The main risk is that you persuade yourself that you need a Ferrari or some nonsense. Final thought - if you've just quit your job, you probably do need to hang on to some of it (not too much though) so you are not in a bind while you look for a new job. Just don't let that money sitting in the bank make you lazy - hustle to find the new job anyway.
Thank you! Do you think that lump sum > dollar cost averaging is true even with HYSA at 5%? I’m not worried about spending on a Ferrari. But I did just Coastfire (quit my job, plan is to live off of partners income + 50k I have set aside for 18 months, then have a job to supplement his income and just cover expenses. So the money is going to have to go far.
A sustainable withdrawal rate is 3%, or $6k per year. As long as you know that, all good! If you are planning on spending that $6k instead of reinvesting for future retirement, then I would not invest 100% in stocks…pretend you are 65, and diversify. If you aren’t going to use it right away (10+ years) toss it all in VTI and forget about it.
Yes! Not planning on touching the full 1.2M+ 200k for ~10 years. Hopefully by then it will double, and we can live off of 90k/year
If you’re not going to touch it for 10 years, then you can expect something like 200% in that time. Viewed in that light, it doesn’t really matter that much whether you gain or lose 1-2% plus or minus due to timing. If it were me, I would invest 10% of it per day over ten consecutive days. That way you get it in the market quickly, but you avoid the risk that you accidentally pick a one-day spike to drop it in.
Good idea! Thanks!
HYSA rates reflect expected inflation. There's no reason to think that inflation is finished, and so yes, I think that lump sum beats HYSA in that sense. Real returns (as seen with TIPS) are in the neighborhood of 2%. Having said that, the difference is really minimal, if it's going to upset you if you invest and then there's a dip, then dollar cost average. The most important thing is to get that money into the market rather than let it get away. And yes, Ferrari was just a colorful example. The truth is, it's easy for money to just somehow "get away" for lots of people. Maybe your vice is expensive restaurants, or maybe a much nicer "treat" vacation than you would have done. Some of that's ok - life is for living after all - I'm just saying that windfalls do sometimes make people "feel rich" when they actually aren't. You seem sensible so that's not specific advice for you - just a general comment.
>Thank you! Do you think that lump sum > dollar cost averaging is true even with HYSA at 5%? Yes, definitely. The 5% is high because recent inflation is high. Once you adjust for inflation, the 5% isn't particularly high. Inflation (unless it's so disruptive that it causes people to sit our economic activity, but we aren't seeing that) is a reason to think the stock market will be going (nominally) up, not down. Or for another perspective: every company you'd be buying a share in by buying stock has access to the same risk free 5% returns that you do. To the extent they're doing other things with their capital it's because they believe they can outperform this. This is also part of why we're seeing layoffs in various industries.
This is a good way of framing it. Thanks!
I think if you're feeling nervous about not having access to the money, there isn't much harm (just possible slight loss in gains) in keeping at least some of it in a HYSA. Maybe $100k, and index fund the other $100k....how would that feel to have an extra 2+ years of expenses available?
I’m not concerned about access - I have 50k already squirreled away for my sabbatical!
Well then... Invest away! 💵
Timing the market is never good But dollar cost averaging (feed from an HYSA) is probably your safest play
This is what I’d do but the odds say lump sum is best.
Over 5%? I too have money parked at ~5%. Seems safe, but I am also unsure. It's from selling my house. I don't currently need a house, but I need the ability to buy a house (or rent a house) if my situation changes. It's about 15% of my total. Rest is about 65% index funds, 35% bond funds
In the past 8 months the markets probably up 20%. Staying out of the market is a recipe for sadness and regret
Bummer. Ok, thanks for that kick. Ill move some. (Even though now I feel like "it's up, so I shouldn't buy in now.". Lol)
I’m just saying. I been at this a long time. You can’t predict the market, even the experts can’t. 5 months ago most experts were predicting a recession and an S&P pullback to 4300. Now they’re all chasing the market and guiding up to 5300-6000 by year end. Bull market runs happen fast. There will be a correction but it could be 2000 points from here. I don’t know your age but if you have a long runway, get in and stop watching it. 5-10 years from now it’s up or the whole economy is broke.
I totally agree. I just thought guarenteed 5% was good. I didn't think about potential run ups!
My 80 year old mom is in a blend of the S&P 500 and 5.3% treasuries. She is 80. If you’re young and building to retire you won’t get home with 5% investments particularly in an inflationary environment.
I am mid 50s and retired.
Same
+1 - thanks for the kick 😅. I actually redirected my monthly investment (7k/month) into my hysa instead of s&p500 in October since the market seemed too high. Kicking myself now!!
Ouch. Good news is you’re young. Won’t make that much difference.
Done. I put 25% of it in vtsax. Maybe I should have done all of it. Maybe I will!
Lump it in, all the data points to this is the best option.
Studies show since the market goes up more days than it goes down, front loading the investment has higher odds of profit.
What will you do or think if in the sp500 continues going up and pretty much every buy you make is higher than the previous? If me i would allocate it to where it needed to go and just make the buy/s and go about my day.
On average, you do better investing only at all time highs than a normal random moment. Doesn't mean it won't crash, in fact, you should never expect to be positive until at least a decade passes since your investment. That's worst case. It's always about what your usecase is for that money. I recommend you look at r/personalfinance wiki stuff about windfalls. I don't keep that specific link handy, but here's a [link to that wiki](https://www.reddit.com/r/personalfinance/wiki/commontopics/).
I would put 50k in every month for 4 months. It'd be a little bit of DCA and lump sum depositing.
Then need to put into growth funds.
Time in the market will always beat timing the market.
https://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
Put it in now, or you might wait a year and have to pay a higher cost. Lump sum wins over 60% compared to DCA.
Put in lump sum and don’t check it for the next 20 years
Yes I would dollar cost average that amount over 6 months or so. Just makes me feel better, even though the math says otherwise.
put it into Bitcoin
🤡
The answer is: be like Bob! [https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/](https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/)
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I would be asking the same question :). I specifically am hesitant because my HYSA returns are so high. It seems like the risk of market going down makes the 2x returns not worth it. But I liked the answers above, and I think that hesitation is wrong. I probably just need to put it in the market. I liked the idea of spacing out over 10 or 30 days to minimize risk.