When to invest new cash?

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Cboy35
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When to invest new cash?

Post by Cboy35 »

A few years ago after reading a couple of Bill Bernstein's books, I decided to give up the detailed personal portfolio management effort for something simpler. The Four Pillars of Investing and the Investors Manifesto formed the rough basis and to be honest with my schedule, this approach mixed with a moderately sized selection of particular equities and other outside investments does me just fine.

What I am curious about is other folks take on side-lined cash. I have more cash sitting in MM than I'd like and I always have the dilemma of when to put it back into the market. I can't say I've heard many people comment from the current 'market is up' perspective, but I suppose the value averaging side makes up later for things you buy at higher price now. The cash has been sitting too long and I don't want to put into more property, etc. Anyone out there using Bernstein's broad indexed approach have any suggestions? Wait for a 'correction'? Put part in now, etc?? Thanks in advance.
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Re: When to invest new cash?

Post by deaddog »

The market thrives on fear and greed. What are you afraid of?
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Re: When to invest new cash?

Post by like_to_retire »

Cboy35 wrote:I have more cash sitting in MM than I'd like
Hopefully you don't actually have the cash in a money market fund as opposed to an HISA.

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Re: When to invest new cash?

Post by ghariton »

I generally invest in a handful of broad based ETFs (and individual Government of Canada bonds). I do not try to time the market any more. I used to try when I was younger, and often regretted it. Now, when I have new money to invest, I invest it right away -- on the principle that the long term trend is upward, and so the sooner my money is in the market, the better my chances.

That said, I recognize that this is a difficult time to put significant money into the market, given recent performance. But then, just about any time is a difficult time. For example, there weren't a whole lot of retail investors piling into the market in the spring of 2009.

Perhaps the best approach is to ask yourself, what would your reaction be if you placed your money now and the market promptly went down by 20%. If the answer is that you could still sleep well at night, I would go ahead now. But if the answer is that your sleep would be disturbed, I would consider a slow drip into the market, over a period of a year or so.

Good luck.

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Re: When to invest new cash?

Post by AltaRed »

One poster in another thread somewhere made a comment that there always seems to be a sector or geographic region that has not ridden the broad market surge. Today it might be Europe or emerging markets, or the commodity/energy sector in Canada. IOW, there are opportunities if you are prepared to invest in something more than broad indices only.

As an example, and whether it will turn out well or not, there was a period circa Oct 2013 where REITs and Prefs had swooned circa 20% off their May 2013 peaks due to a bond market surge. I bought some REITs and Prefs at that time. Clearly, both asset classes will suffer worse than Oct 2013 when bond yields really do rise, but that could be years from now.\

That said, I am still heavy in cash (in HISA accounts) considering if there are additional moves to make, e.g. energy/commodities.
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Re: When to invest new cash?

Post by ockham »

ghariton wrote:
Perhaps the best approach is to ask yourself, what would your reaction be if you placed your money now and the market promptly went down by 20%. If the answer is that you could still sleep well at night, I would go ahead now. But if the answer is that your sleep would be disturbed, I would consider a slow drip into the market, over a period of a year or so.

Good luck.

George
I think asking that one question isn't enough. ALSO ask yourself, what would your reaction be if you started on a slow drip, and the market promptly went up by 20%. Would you now (i) unperturbed, continue with the drip, (ii) perturbed, place all the remaining money now, or (iii) perturbed, post another query to FWF asking for opinions on market direction (should I sell what I dripped in, should I....). And then, also, ask yourself how reliable you are at gauging your emotional reaction to future events, whether pleasant or unpleasant. (Speaking for myself, the actual experience of a market correction is always quite different than what I, sitting in my armchair, think it's going to be).
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Re: When to invest new cash?

Post by larry81 »

unless you have a crystal ball, today is always a good day to deploy new cash !
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Re: When to invest new cash?

Post by blonde »

It all depends on the definition of 'Money' and 'NEW-Money'

Study the System.

Do not be surprised to learn that in this day and age, with Money-Manipulators exercising the VooDoo economics in ALL Markets, Real New-Money is stockpiled for when Real New Opportunities pop-up. In addition, the process applied for the 2008 crash is continuously improved to get the most for the least. Needless to say, the NEW process will not resemble the 2008 process. Furthermore, 'ems not in the Loop with Insider-Info would be wise to hang about on the outside porch and watch the action of the Big-Dawgs.

Unlike 10%ers, the aim is to ration-feed the 90%ers and NOT fatten 'ems.

It is all about Mega-Money, Folks!!!
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Re: When to invest new cash?

Post by ghariton »

ockham wrote:
ghariton wrote:
Perhaps the best approach is to ask yourself, what would your reaction be if you placed your money now and the market promptly went down by 20%. If the answer is that you could still sleep well at night, I would go ahead now. But if the answer is that your sleep would be disturbed, I would consider a slow drip into the market, over a period of a year or so.

Good luck.

George
I think asking that one question isn't enough. ALSO ask yourself, what would your reaction be if you started on a slow drip, and the market promptly went up by 20%. Would you now (i) unperturbed, continue with the drip, (ii) perturbed, place all the remaining money now, or (iii) perturbed, post another query to FWF asking for opinions on market direction (should I sell what I dripped in, should I....). And then, also, ask yourself how reliable you are at gauging your emotional reaction to future events, whether pleasant or unpleasant. (Speaking for myself, the actual experience of a market correction is always quite different than what I, sitting in my armchair, think it's going to be).
+ 1

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Re: When to invest new cash?

Post by Cboy35 »

Thanks for the replies, especially the variability in answers. I think I'm where I was before...which is fine.

70% of the 'cash' is in HISA linked account so at least there is that.

I still think I'll trickle into the market here and there, but wait for a correction to really mobilize the bulk of cash. Based on the porfolio I have, even if a moderate correction took another couple of years to occur, it looks like putting most of the cash to work then may outperform a Gordon-type assessment of yield + growth...of course assuming again.

Would anybody think this is a bad way to look at it; assessing what I think yield and growth would be versus the discount of new entry?

Thanks,
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Re: When to invest new cash?

Post by newguy »

I think the only way to decide is to sum over all the probabilities. It's hard to pick probabilities but if you guessed the market has a 70% chance of being up 5% and 30% chance of being down 20% at the end of a year, you might be better off waiting.

By waiting figure you have $100 and the market is $1/unit, you have a 70% chance of having (100/1.05) 95u or 30% of having (100/0.80) 125u. So weighted avg gives 104 units at the end of the year. Slightly better than the 100 units buying now would give you.

This doesn't mean you'll be right (in fact it's a 70% chance of being wrong), only that you played the odds right, which is all I hope for anyway.

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Re: When to invest new cash?

Post by ockham »

Cboy35 wrote:
I still think I'll trickle into the market here and there, but wait for a correction to really mobilize the bulk of cash. Based on the porfolio I have, even if a moderate correction took another couple of years to occur, it looks like putting most of the cash to work then may outperform a Gordon-type assessment of yield + growth...of course assuming again.

Would anybody think this is a bad way to look at it; assessing what I think yield and growth would be versus the discount of new entry?

Thanks,
---Will
You asked, so I'll answer. I think it's a bad way to look at it. What I tried to say in my earlier post (and what ghariton tried to say in his post, and deaddog (if I may presume) in his) is that the question of whether to go all in or drip in is a psychological/emotional question about YOU. Your decision, whatever it is, is made under conditions of high uncertainty about market direction, and will in any event be non-optimum. Only issue is how seriously non-optimum. How do you deal with that psychologically/emotionally?? We certainly don't know that. Do you??

(BTW, if you think deciding to go all in seems ill-advised when markets are high, think about how ill-advised an all in decision looks when markets are depressed, when everything is heading for the crapper, when there is no end in sight to the economic gloom.)
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Re: When to invest new cash?

Post by Cboy35 »

The emotional-side comments I understand as fundamental and I appreciate the comments. I am more risk tolerant than most, but more importantly I don't fret at all about things I cannot change or impact like markets once I've chosen a course of action. Diversification (and personal history) takes care of that outside a very black swan. In this case the fewest assumptions per Ockham...

- a correction is inevitable irrespective of precedent
- uninterrupted growth of any market is not possible, frequency of course may look long depending on the viewer

The thing I have wondered is how to value a correction (not timing the market, but as a 'goal-seek' if you will) for investing new money versus yield+growth of a diversified portfolio. I suspect the truth is that the math is out there, but I'm not knowing where to look...

No worries if the thread is getting too long and thanks to anyone who may have some ideas on goal-seeking.
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Re: When to invest new cash?

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AltaRed wrote:One poster in another thread somewhere made a comment that there always seems to be a sector or .geographic region that has not ridden the broad market surge. Today it might be Europe or emerging markets, or the commodity/energy sector in Canada. IOW, there are opportunities if you are prepared to invest in something more than broad indices only.

As an example, and whether it will turn out well or not, there was a period circa Oct 2013 where REITs and Prefs had swooned circa 20% off their May 2013 peaks due to a bond market surge. I bought some REITs and Prefs at that time. Clearly, both asset classes will suffer worse than Oct 2013 when bond yields really do rise, but that could be years from now.
I like this approach. Put lump sums into depressed sectors, and trickle into average-value sectors. From my experience. the longer I wait for a correction, the more cash ends up waiting on the sidelines - and the harder the decision becomes :oops:.

At the very least, if you have a regular inflow - eg an employer plan or a similar personal plan - set up a trickle on that money, so that the cash out-of-the market doesn't accumulate ....

Also IMO, you can only assess the psychological effect of a correction if you have a good chunk of money in the market when the correction occurs.

This is where it helps to be a dividend-focused investor. If the market falls, but the dividends hold - that should bother you less. Does it? - which again is a hypothetical Q until it happens.
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Re: When to invest new cash?

Post by ig17 »

We are missing critical data.

OP's age
Current portfolio value
The size of the cash pile
Annual savings rate
Investment time frame

If OP is sufficiently young, and the size of the cash pile is sufficiently modest, it doesn't matter a whole lot how he deploys the cash. The impact on the terminal portfolio value is likely quite negligible.
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Re: When to invest new cash?

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General background to help...

Early 40's, invested 70/30 Stock/Bond, 60/40 US/mix of World, 75% in non-tax Qual, 25% in taxable. Some equities (<15 co's). Total portfolio value significantly 'ahead of my age?' (for a working stiff) and cash to invest is a 100K taxed, 150K non. Almost no debt. Have been value averaging the last few years (1 re-allocation/yr) then work got crazy and cash started to build as I left portfolio on auto. If I'd stayed with it, I wouldn't have the dilemma of when to put it back to work.
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Re: When to invest new cash?

Post by adrian2 »

Cboy35 wrote:75% in non-tax Qual
Qual? Are you a Canadian resident?

First time I'm reading that term.
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Re: When to invest new cash?

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Sorry, it would be an RRSP except that I've been in the US working for a company for 15 years so it is technically a 401k or defined-contribution qualified retirement plan. Some similarities, but generally pre-tax. More restrictive, but c'est la vie.
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Re: When to invest new cash?

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An all or nothing approach has never sat well with me it may be academically superior but not emotionally for me. I'd rather miss a big gain than suffer a big loss. To be more comfortable I have always used at least a two prong approach. DCA in on a regular preset automatic monthly basis and max about two trades per month on stuff that looked cheap or cheaper and at the same time try to keep a diversified and AA adjusted portfolio. The AA has never been more than 50% equity and with a high savings rate and a need for a portfolio to only generate about $50,000 a year this was high enough and has now dropped to 35% which I'm considering lowering further.

My suggestion would be to set up some long term PAC that when you get busy keeps adding funds on a regular basis and review annually.
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Re: When to invest new cash?

Post by deaddog »

BRIAN5000 wrote:
I'd rather miss a big gain than suffer a big loss.

My suggestion would be to set up some long term PAC that when you get busy keeps adding funds on a regular basis and review annually.
How does DCA stop you from suffering a big loss? You can DCA into a falling investmenmt all the way down.

A big loss happens because you don't take a small loss.
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Re: When to invest new cash?

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deaddog wrote:
BRIAN5000 wrote:
I'd rather miss a big gain than suffer a big loss.

My suggestion would be to set up some long term PAC that when you get busy keeps adding funds on a regular basis and review annually.
How does DCA stop you from suffering a big loss? You can DCA into a falling investmenmt all the way down.

A big loss happens because you don't take a small loss.
An immediate or soon after investing a wack of cash was my meaning. I have not been able to figure out how to protect from large loss's on market swoon's, 08-09 was about $300,000. The next one will be worse because my potfolio is now bigger. All the CG I have now will again disappear just like last time with any luck principle and income won't be hit to hard.
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Re: When to invest new cash?

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ockham wrote:And then, also, ask yourself how reliable you are at gauging your emotional reaction to future events, whether pleasant or unpleasant. (Speaking for myself, the actual experience of a market correction is always quite different than what I, sitting in my armchair, think it's going to be).
This piqued my curiousity. Can you explain what was different and how it differed?

I _think_ I understand quite well how I react to various market events (but I won't know for sure until I lose significant amounts of money) and I'm always looking to learn from more grizzled investors' experiences.
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Re: When to invest new cash?

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I would call my actual reaction to the 2008/2009 crisis (where I was down circa 30%) as a bit 'moody' but not panicky. I had a good cash reserve, believed the markets would come back as they always have, and knew this period was a buying opportunity. I was a net buyer at that time albeit I did not deploy all my cash (kept 1+ year expenses in reserve) nor would I consider going on margin (assuming I would have been permitted to) to leverage the comeback.

I do not recall my actual reaction being any different than I what I had anticipated it to be.... primarily because of my principle to always have a cash reserve of a year or two, allowing me to weather whatever is thrown my way.

History: I had gone through the Asian flu (1997) and Russian credit (1998) crises and the tech crisis prior to that. I was still well in my working career and none of those crises had a material impact on me. I was earning well and no plans to retire before 2010. But I did learn. The Asian flu taught me not to trust the Far East (I had one mutual fund at that time that imploded) and I never invested in that region since that time. Latin American and Russian crises put me off emerging markets for good as well. I never did ride the technology horse...except for one partial mutual fund holding that I rode up and then cashed out before heading into loss territory.

I became a believer in value investing, fundamentals, brick and mortar. Everything else is noise.
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Re: When to invest new cash?

Post by deaddog »

gsp_ wrote:
ockham wrote:And then, also, ask yourself how reliable you are at gauging your emotional reaction to future events, whether pleasant or unpleasant. (Speaking for myself, the actual experience of a market correction is always quite different than what I, sitting in my armchair, think it's going to be).
This piqued my curiousity. Can you explain what was different and how it differed?

I _think_ I understand quite well how I react to various market events (but I won't know for sure until I lose significant amounts of money) and I'm always looking to learn from more grizzled investors' experiences.
Your emotions get the best of you. You start to think that the market won't recover. If I had only got out last month I'd be ahead. You watch your net worth evaporate and the news is all bad. I went through it in 87 but didn't have enough invested to worry about it. In 2001 I was just starting retirement and sat thru another downturn and decided that I didn't want to do that again. 2008 I went to cash, missed a lot of the down move and a little of the recovery but came out ahead. I was able to sell and buy the same stocks cheaper.

Retirement and counting on your investments changes your thinking from how much can I make to how much can I lose. You can control the amount you lose. Take small losses and let the stocks that are performing well do their thing.

There seems to an unwritten law that once you invest in something you have to stick with it regardless of how it performs. Big losses come from not taking small losses.
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Re: When to invest new cash?

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deaddog wrote:You can control the amount you lose. Take small losses and let the stocks that are performing well do their thing.

There seems to an unwritten law that once you invest in something you have to stick with it regardless of how it performs. Big losses come from not taking small losses.
We talked about this several times. You believe in the IBD mantra, I don't.
For me, big losses come from taking numerous small losses, and being whipsawed.

You won't convince me, I won't change your mind.
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