Given a lump sum 401(k) rollover eventually going into a mutual fund/VA mix, would you dca into it or just go out and buy the investments tomorrow, knowing American Funds and the like can (and are) raising cash positions?
I have struggled with this too. Another advisor suggested that if it was in stocks in the 401, you might as well invest it fully now. I thought that made sense.
I'm telling my clients to split up large sums into three. You get a ten percent discount today on the first third. If things go real bad you might get another 5-10% discount on the second third this summer, if not at least you got your first buy at 10% off. Finally, leave a third for the fall where if you are lucky you can enjoy a post election or end-of-year rally.
Oh, by the way, I'm taking all their money now...just keeping the non-invested $$ in a MMKT fund.
I'm not smart enough to know whether the market is going to go up or down. I just know that it goes up more than it goes down, so I firmly believe that the best time to invest is when someone has the money.
It only makes sense to dca the money in if you think that the market is going to go down. If you believe that, why wouldn't you take the holdings for all of your clients and put them in a money market and then DCA back into the market? (Of course you aren't going to do this, so why do it with new money?)
Over the shorter term, point of entry makes the difference between a pretty happy client and a pretty unhappy one. Over time the effect of the point of entry makes less and less of a differentce. No client will ever fault us for investing cautiously.
I'm as much a fan of going against the tide as anyone. But there are a lot of smart people right now, predicting that the worst is yet to come.
And technically, so far, there is no sign of the market righting itself.
I dont mean to or want to turn this thread into a market discussion. But with all the unknowns out there right now, i vote for proceeding cautiously with new money, especially with new clients.
since we are talking about $ in the market now, put it 100% back into the market in a lump sum. i agree with anonymous. would you advise them to put money in cash if they left it with their 401K plan provider?
I agree with Prato, statistically DCAing is actually a losing effort, and I am not predicting what will happen this or any year, but the one thing DCAing can do is save your butt from losing 15% for your client the first month.
The pain of loss is greater than the joy of earned money. I often DCA to lower the short term risk of a unhappy client.
so you MUST do some EXTRA hand holding/education to prepare them for that very situation, no? if you think they are someone who would bolt if the market dipped 10%, don't bring them on. you just basically said to do what is not the most appropriate thing-by your own admission.
i know where you come from DK. DCA'ing might make the client potentially less angry short term, but why even try to time your investments, even a little bit? this isn't short term money we are talking about.
I ended up dca'ing the one client as I told her to go to cash in the 401k over the summer. I think you can make a case for just buying as well as American Funds (in this case) is sitting on 8-10% cash positions in their equity portfolios. I know Bob Brinker is saying to dca in.
Iron, I know exactly what you are saying, in theory it's right, but in practice it doesn't always work. There are clients who NEED to take it slowly, especially if they are new to equities. Extra hand holding, is great, but many good/suitable clients would freak out if down 10% in the first month no matter how much you prepare them. It's discomforting enough when you understand the market. Again, I understand your point and agree but disagree at the same time.
Also, I did not recommend "to do what is not the most appropriate thing".
The most appropriate thing is what helps the clients best achieve their goals, not what gives them the highest "statistical" return.
Maximizing return is not our sole priority, we must BALANCE risk and return.