In the next month I will inherit my late wife’s US IRA pension . It is around 300k USD and currently invested in VTIVX (target date fund) so is already exposed to the market. I will transfer it to my own IRA rollover, so it is tax-deferred.
I know statistically a lump sum will win 70% of the time, simply due to time in market vs timing the market. But those statistics don’t seem great, and the psychological aspect of lump summing in the current market cannot be ignored. Logically, since the money is already invested and heavily exposed to the US market, then throwing it all in VT is likely a step to improving diversity and expected returns (VTIVX has something like 20% US bonds at the moment, but the equities are more weighted to the US than VT). Still, when you have the ability to influence the investment there is some pressure to make the right decisions. Given the Iran situation sitting on top is potentially impacts of AI and US tech stock pricing I feel there are more risks than typical
I am just wondering if there are some strategies. E.g., I could immediately invest 50% in VT, or perhaps invest 5% every day for 2 weeks. Then invest the rest on a fixed schedule, but there could be many schedules and time lines. So I wonder if there have been any studies that compare returns and risks. I will also invest in a mixture of VT (50%), VTXUS (15%), SCHD (10-15%) and SCHY 10-15%, so there is even scope while DCAing to look at individual ETF performance and but whatever is cheaper each week/month etc. Money not invested will be parked in BOXX and SGOV so at least keep ups with inflation.
I am making this post because I only started invested early last year and after a few months of play money I invested 70k CHF just to see it drop 10% a few weeks later in April.
Lastly, being a pension account I cannot do something stupid like sell after a crash without getting further screwed with taxes that will be applied by both the US and CH, so in this respect I should be safe (or incredibly stupid).
Can you just leave it in VTIVX? What are the options? I’d just decide the final allocation and change it immediately and leave it alone after that e.g. x% VT x% VTXUS x% SCHD x% SCHY
The one time I lump summed a 6 digit amount was the worst time in the last 5 years. But it turns out great - sticking to the strategy.
The second time is now since I have some amounts going to a 1e from previous pension and chose the most “risky” strategy. I’m sure it’s a very good time too
In between I DCAed large amounts (reducing my cash allocation + income) during bull market and in hindsight I would be better off if I lumped sum that.
To me this isn’t a question about lump sum vs. DCA since you already pointed out, that the money is currently invested in the market (80/20).
So it’s rather a question of whether to time the market or not, meaning to “sell” (not invest) part of the portfolio, given what’s going on in the world at the moment.
Still: If it makes you sleep better, there is nothing wrong with investing the money step by step, like you mentioned, or for example 10% each month over the next 10 months.
this sounds like DCA is best for you. a good question to ask yourself could be: what will i regret more, lump-sum into a bear/correction or DCA into a bull?
VTIVX (Vanguard Target Retirement 2045) is currently sitting at roughly an 80/20 split between global equities and bonds. If you sell it all to sit in BOXX/SGOV and slowly Dollar Cost Average (DCA) into VT, you aren’t avoiding market risk, you are making an active, conscious decision to exit the market, sit in cash, and slowly time your re-entry.
If your goal is to move from VTIVX to a more diversified ETF portfolio, doing a direct swap (selling VTIVX and immediately buying your new ETFs on the same day) isn’t really a “lump sum” investment in the traditional sense of deploying new cash. It’s just a reallocation. If the market drops 10% the day after you swap, VTIVX would have dropped alongside VT anyway.
Vanguard’s classic research on LSI vs. DCA shows that lump-sum beats DCA about 68% of the time, simply because markets go up more often than they go down. However, Vanguard also concluded that if you must DCA to minimize the risk of regret, it is mathematically best to keep the DCA window short, ideally between 3 to 6 months. Stretching it out longer introduces too much cash drag.
Instead of selling to cash (BOXX), leave the bulk of the money in VTIVX. Every month for the next 4 months, sell 25% of the VTIVX and buy your new ETF mix. This keeps your money invested in the market the whole time, but eases your anxiety about making one massive trade on the “wrong” day.
Thank you - this is why I made this post because logically I knew the best answer but I just wanted to be hit on the head to stick to it. Especially given the windfall is already invested, the risks are already there so in some sense this isn’t even a choice.
a DCA over 3-6 months is roughly what I was thinking, well 50% in VT immediately then DCA weekly . This psychologically helps handle the immediate volatility due to Iran (at least in my head, in 6 months time we will know more)
I should see if I can transfer the VTIVX positions directly, as at least psychologically this simplifies things.
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