Lump sum or DCA investment for inheritance?

[disneysteve]

A large chunk of the inheritance I've received is coming to me in cash which is totally throwing off our AA. My question is if I should get it invested ASAP as a lump sum or spread it out over a few weeks or couple of months? I wouldn't drag it out any longer than that no matter what. Right now counting everything (including money I haven't actually received yet but will), our stock allocation is about 14% below my target AA due to the sudden cash inflow.

I know the "right" answer is probably to get it invested right away but it's a little hard to pull the trigger on buying a substantial 6-figure amount of stock all at once like that.

What would you do?

[Like2Plan]

If it helps to think about it this way, what was it invested before? That is how I chose to look at it when we did a roll over from 401k to rollover IRA.They couldn't do an in kind transfer so it was a cash lump sum and to be honest it was a little intimidating. But, when I thought about it, it was easy to just put it in all at once (some bond index, some stock index to replicate what it had been invested in).

[disneysteve]

If it helps to think about it this way, what was it invested before? That is how I chose to look at it when we did a roll over from 401k to rollover IRA.They couldn't do an in kind transfer so it was a cash lump sum and to be honest it was a little intimidating. But, when I thought about it, it was easy to just put it in all at once (some bond index, some stock index to replicate what it had been invested in).

This is a somewhat different situation since it wasn't my money before. It isn't going between accounts I already had. It's new money coming in from outside.

Still, I know lump sum is the way to go and that's what I'll end up doing. Because the money is spread between a few accounts and some of it hasn't even come to me yet, it isn't going to happen in a day anyway.

[Like2Plan]

This is a somewhat different situation since it wasn't my money before. It isn't going between accounts I already had. It's new money coming in from outside.

Still, I know lump sum is the way to go and that's what I'll end up doing. Because the money is spread between a few accounts and some of it hasn't even come to me yet, it isn't going to happen in a day anyway.

I was thinking from the stand point that it was invested in something before you inherited it--or was it all cash before?

edited to add: Of course, you would want the investments to line up with your Asset Allocation when it gets transferred over to you.

[Jluke]

If you’re looking for alternative idea rather than the usual prescribed lump sum.

50% now and then 10% each month thereafter.

if you’re not getting the money all at once then maybe that is how DCA can also work. Just invest as it becomes available (not sure what that timing and amounts look like).

if it is a taxable account just make sure you aren’t buying the dividend. I know VTI and other vanguard funds have been paying out their dividends so you may be in the clear.

I held off buying VTI the last week to avoid the dividend since I have 14k to throw in there.

[scfr]

I'd probably be comfortable investing about a quarter right away. Then I'd take some time to revisit my AA. With a substantial inheritance, I might adjust it.

[kork13]

Personally, I'd probably do something like what JLuke suggested. One big chunk whenever you have it, then you can slow-roll the rest over the course of a few months to mitigate your fears of buying big at the top (or whatever the fear happens to be driving a desire for DCA).

[disneysteve]

Thanks everyone.

I'm going to move the money in as I get to it, so not exactly lump sum but not intentional DCA either. I did put in two trade orders that will execute tomorrow. That represents about 10% of the money that needs to move into the market. Over the next few days, I'll likely get more of it situated.

[disneysteve]

I've completed a bunch of trades this past week to get everything situated. As of now, we're at 57% stock, 37.4% bond, and 5.6% cash. That's not quite where I want it but it's a whole lot closer than it was when I started this thread. I'll probably tweak it more over the next week or so if I have time while I'm back in Florida. If not, I'll take care of it when I get home.

I haven't received all of the inheritance yet. There's one big chunk that will come from selling the house. There are also a few cash accounts (checking and savings) and some checks that have come in (insurance, dividends, etc.) that will be held in the estate account until the probate process is completed in a few months so I won't get those funds until later this year. I was okay putting a chunk into equities now and then there will be another round of investing to do when the estate account gets closed.

[Jluke]

So you’re essentially DCA’ing the entire inheritance and lump summing since you invest it as you get it.

[disneysteve]

So you’re essentially DCA’ing the entire inheritance and lump summing since you invest it as you get it.

Yeah it’s a little bit of both since the money isn’t coming in all at once.

[Nutria]

This is a somewhat different situation since it wasn't my money before. It isn't going between accounts I already had. It's new money coming in from outside.

I disagree that it's different, since money is fungible.

If it was in mutual funds X,Y and Z while your cousin was alive, then putting it in mutual funds X,Y and Z isn't a lump sum investment, it's essentially the same investment with a different owner. (You probably invested it somewhat differently, but even then it's no different than if you rebalanced your own investments.)

Remember: MONEY IS FUNGIBLE!

[LivingAlmostLarge]

I disagree that it's different, since money is fungible.

If it was in mutual funds X,Y and Z while your cousin was alive, then putting it in mutual funds X,Y and Z isn't a lump sum investment, it's essentially the same investment with a different owner. (You probably invested it somewhat differently, but even then it's no different than if you rebalanced your own investments.)

Remember: MONEY IS FUNGIBLE!

i have to remember this all the time

[scfr]

Just wanted to let you know that I was inspired by this thread to start DCA'ing some money I have in my brokerage settlement account to an ETF. I've known which ETF I wanted to invest in, but kept trying to figure out a "good" price and put in purchase limit orders. That wasn't working out and the funds have just been sitting there for too long. When I saw your post, I realized "just do it" was the way to go and immediately started buying $1K worth of shares each month regardless of the price. Monday was my 2nd purchase. So thanks. Now the purchases are on my calendar and I don't have to think about it any more.

[disneysteve]

Just wanted to let you know that I was inspired by this thread to start DCA'ing some money I have in my brokerage settlement account to an ETF. I've known which ETF I wanted to invest in, but kept trying to figure out a "good" price and put in purchase limit orders. That wasn't working out and the funds have just been sitting there for too long. When I saw your post, I realized "just do it" was the way to go and immediately started buying $1K worth of shares each month regardless of the price. Monday was my 2nd purchase. So thanks. Now the purchases are on my calendar and I don't have to think about it any more.

You're welcome. Happy to inspire others.

As I said earlier, I did invest a bunch of the money. I also put a big chunk into a short-term bond fund so that it was least earning something (1.35% I think) and I've been moving 10K chunks from there into an equity fund.

We seem to be on track to close on the house sale soon. That will go into the estate account, along with about 70K that's already in there, bringing the total to about 540K. I won't get that until the probate process ends in October. At that point, I'll need to do some serious investing and allocating to get everything where we want it.

Then starting in 2022, I'll have to start taking distributions from the inherited IRA. I'm estimating that will be 19-20K/year that I need to take out so we'll have to decide what to do with that money when the time comes. That will partly depend on how we're making out once I drop to part time at work.