Lump-sum vs. DCA on large $$$ amounts

[kork13]

I don't want to put the cart before the horse ... but today we received a promising offer on our previous house -- just shy of our asking price, and we're only negotiating a bit on closing costs. If the deal goes through & closes (or even if not, assuming a comparable deal eventually closes), we'd be looking at roughly $350k getting dropped into our account all at once (we own the house outright, no mortgage to payoff). While we're living overseas through at least summer 2027, we're required to live on-base, effectively renting. As an added wrinkle, I become eligible to retire from the military in 2028 (though I might stay in until 2030-2032). So the next place we get stationed (if we like it there) could end up being a longer-term home for us... otherwise, we'll ultimately probably go back to Alaska, where we loved living. In short, we'll be buying our next house, relying partly on this money.

With that said, we obviously don't want this money to sit around earning a measly 4% or less in a savings account, so it definitely needs to get invested. But I'll admit it's unnerving to consider dropping $350k into the market all at once & hoping that we don't see a sudden drop soon afterward. I know that I'm normally the first one around here to tell people "It's time IN the market that matters ... not timING the market" ... but with big dollar figures, does that advice change at all? I wonder if it would make sense to DCA the money into the market over the course of a few months, like $50k every 2-4 weeks or something, just to spread out the risk of market fluctuations, especially given the shorter timelines involved. I'm just trying to think through the eventualities here, and decide what makes the most sense whenever this house does sell.


If I can preempt one anticipated discussion point ... I know that some would say that I shouldn't be investing this money into the stock market at all (or at least not entirely), if I'll just want to pull it back out only 3 years later. "Put it into treasuries/fixed income instead!" is a totally valid proposal ... but it's not much of interest to me. I just checked rates for bonds/treasuries, and it's basically at the same 4%-ish that I can get in a savings account/MMF (before taxes), albeit locked in at that rate. I generally consider myself to be quite risk tolerant -- we're 38 & 39 y/o, all of our investments sit around a 90/10 stock/bond AA; when the market turns south, I'm typically trying to find extra money to buy in with all the way down; and I'm not one to panic-sell. As another consideration, this money is not "everything" for us. This money amounts to ~16% our our total NW, so while significant, it's not life-altering. We also have another $300k already sitting in taxable investments, so even if we needed the money & had lost some on the house money, we'd still be able to pull out whatever we need without a problem. While bonds/treasuries might be the safest choice, it's not very appealing to me.

Appreciate any advice... As I said, I'm just trying to work through my thoughts & reason out a way forward, and I'm open to being convinced.

[cypher1]

Just reading over it quickly and if I was in your financial position, I'd probably put the first 200K in lump for stocks/index funds or current funds and DCA the remaining 150K throughout the next 12 months or so.

If you don't think you'll be needing the cash in the next 5-10 yrs for a home and it only counts as ~16% of your NW, might as follow your current risk tolerance. If that's too aggressive or concerned with market volatility then just DCA throughout the next few years or whatever your time frame is and maintain 90/10 allocation. Good problem to have either way.

[disneysteve]

I think your thought process is good and thorough. If you know you won't necessarily need this money for the next home purchase, investing it makes total sense. As for lump sum or DCA, statistically, lump sum investing almost always wins in the long run. DCA is often misunderstood/misinterpreted. The point of DCA is to manage investing over time from current income. For example, most people can't max out their Roth on January 2 each year. They need to spread it out over time. But if you can afford to, you'll do better long term if you fully fund it at the start of the year.

The same goes for this money. When you have a lump sum available, DCA really doesn't apply. Invest it at the earliest opportunity and let it do it's thing. Add it according to your desired AA.

Now if dropping 350K into the market in one shot will keep you up at night, do whatever feels most comfortable. Maybe it's 50K for 7 weeks or 7 months. The emotional side needs to be satisfied too.

[srblanco7]

I don't want to put the cart before the horse ... but today we received a promising offer on our previous house -- just shy of our asking price, and we're only negotiating a bit on closing costs. If the deal goes through & closes (or even if not, assuming a comparable deal eventually closes), we'd be looking at roughly $350k getting dropped into our account all at once (we own the house outright, no mortgage to payoff). While we're living overseas through at least summer 2027, we're required to live on-base, effectively renting. As an added wrinkle, I become eligible to retire from the military in 2028 (though I might stay in until 2030-2032). So the next place we get stationed (if we like it there) could end up being a longer-term home for us... otherwise, we'll ultimately probably go back to Alaska, where we loved living. In short, we'll be buying our next house, relying partly on this money.

With that said, we obviously don't want this money to sit around earning a measly 4% or less in a savings account, so it definitely needs to get invested. But I'll admit it's unnerving to consider dropping $350k into the market all at once & hoping that we don't see a sudden drop soon afterward. I know that I'm normally the first one around here to tell people "It's time IN the market that matters ... not timING the market" ... but with big dollar figures, does that advice change at all? I wonder if it would make sense to DCA the money into the market over the course of a few months, like $50k every 2-4 weeks or something, just to spread out the risk of market fluctuations, especially given the shorter timelines involved. I'm just trying to think through the eventualities here, and decide what makes the most sense whenever this house does sell.


If I can preempt one anticipated discussion point ... I know that some would say that I shouldn't be investing this money into the stock market at all (or at least not entirely), if I'll just want to pull it back out only 3 years later. "Put it into treasuries/fixed income instead!" is a totally valid proposal ... but it's not much of interest to me. I just checked rates for bonds/treasuries, and it's basically at the same 4%-ish that I can get in a savings account/MMF (before taxes), albeit locked in at that rate. I generally consider myself to be quite risk tolerant -- we're 38 & 39 y/o, all of our investments sit around a 90/10 stock/bond AA; when the market turns south, I'm typically trying to find extra money to buy in with all the way down; and I'm not one to panic-sell. As another consideration, this money is not "everything" for us. This money amounts to ~16% our our total NW, so while significant, it's not life-altering. We also have another $300k already sitting in taxable investments, so even if we needed the money & had lost some on the house money, we'd still be able to pull out whatever we need without a problem. While bonds/treasuries might be the safest choice, it's not very appealing to me.

Appreciate any advice... As I said, I'm just trying to work through my thoughts & reason out a way forward, and I'm open to being convinced.

You pretty much worked thru the options in your post. There's risk in putting it in the market with a 3-4 year time horizon and, in general, lump sum makes more sense than DCA when you're looking at a long-term time horizon. That being said, when I received a large LS payout, I went with a DCA approach because I thought the market valuations were a bit frothy. I did this with full recognition that my approach represented a form of market timing. Ultimately, I got lucky as I had about 50% of my LS payout in a money market when the pandemic hit and I bought into the market during the COVID dip in March 2020.

Ultimately, I'd probably create a decision framework based on modeling the downside I could live with (that is, based on a theoretical 30-50% drop in stocks how much would I be willing to invest). I'd also likely look to balance risk by looking for an undervalued portion of the market to invest in (e.g., consideration of ex-US stocks vs the S&P500).

You are, of course, on target to be very well off since the $350k represents less than 20% of your NW. Congrats and thank you for your service.

[EasyMoney00]

Time in the market is almost always better than timing the market. You'll have to do what's comfortable with you.

Also, 350k at 4% is around $1,160/month in interest. That rate should decrease with fed cuts, but something to consider.

[kork13]

Ultimately, I'd probably create a decision framework based on modeling the downside I could live with (that is, based on a theoretical 30-50% drop in stocks how much would I be willing to invest).

Lucky timing with having a large chunk sitting around at the start of the COVID drop!

I like your suggestion of looking ahead to potential downside, and deciding how to handle it from that perspective. That makes alot of sense, and even just thinking through it offhand, it does give me some useful impressions of where my comfort level lies with potential losses -- seems that it starts to feel painful around the $70k mark ($20k-$35k drop). So maybe that's roughly what I'll settle into -- investing $70k at a time, probably monthly.


SALE UPDATE: Through continued negotiations, it seems that the buyers are most interested in not paying any closing costs out of pocket above their 5% downpayment (with a VA loan) ... so we're awaiting one more counteroffer this morning (which we intend to accept) for a sale at the full asking price ($395k) but we'll cover a higher amount of their closing costs ($11k). It nets out to within $250 of our previous counter-offer ($390k sale price but only $7k closing costs) ... so I think we should be under contract within the day!

Funny enough, one of the financial goals that I wrote out at the beginning of 2024 was "Sell house for $350k+" ... and it looks like we'll walk away with roughly $356k! Mission accomplished. (I won't bother with bemoaning the wild transaction costs involved ... but $40k off the top? Woof.)

[Jluke]

What did you agree to as far as realtor fees now that they are ‘more negotiable’? I assume that was a chunk of 40k off the top.

[kork13]

What did you agree to as far as realtor fees now that they are ‘more negotiable’? I assume that was a chunk of 40k off the top.

2.5% for each, so that's half of the $40k. Our realtor is a good friend of ours & helped us buy the house in 2020. Since neither of us have been local to the house since the listing, she's definitely handling alot more than typical, and she's been fantastically helpful. Though I still don't like the dynamic of realtor compensation. But that's a rant for a separate thread.

[kork13]

SALE UPDATE: Through continued negotiations, it seems that the buyers are most interested in not paying any closing costs out of pocket above their 5% downpayment (with a VA loan) ... so we're awaiting one more counteroffer this morning (which we intend to accept) for a sale at the full asking price ($395k) but we'll cover a higher amount of their closing costs ($11k). It nets out to within $250 of our previous counter-offer ($390k sale price but only $7k closing costs) ... so I think we should be under contract within the day!

UPDATE #2: We're under contract! What a relief.

In another thread I mentioned a couple weeks back that the AOM (average days on the market) in the town was 45 ... And As of today, we're at 44 days -- perfectly average. Though I'll admit there, we were starting to get nervous, and starting to look at a potential price reduction.

[srblanco7]

Lucky timing with having a large chunk sitting around at the start of the COVID drop!

I like your suggestion of looking ahead to potential downside, and deciding how to handle it from that perspective. That makes alot of sense, and even just thinking through it offhand, it does give me some useful impressions of where my comfort level lies with potential losses -- seems that it starts to feel painful around the $70k mark ($20k-$35k drop). So maybe that's roughly what I'll settle into -- investing $70k at a time, probably monthly.


SALE UPDATE: Through continued negotiations, it seems that the buyers are most interested in not paying any closing costs out of pocket above their 5% downpayment (with a VA loan) ... so we're awaiting one more counteroffer this morning (which we intend to accept) for a sale at the full asking price ($395k) but we'll cover a higher amount of their closing costs ($11k). It nets out to within $250 of our previous counter-offer ($390k sale price but only $7k closing costs) ... so I think we should be under contract within the day!

Funny enough, one of the financial goals that I wrote out at the beginning of 2024 was "Sell house for $350k+" ... and it looks like we'll walk away with roughly $356k! Mission accomplished. (I won't bother with bemoaning the wild transaction costs involved ... but $40k off the top? Woof.)

Lucky timing indeed - better to be lucky than good. Congrats again on the impending sale!

[QuarterMillionMan]

I'd say follow your intuition. I'm sitting on $250,000 in cash with 4% interest and I'm comfortable with it parked there. Remember 2008?

[kork13]

I'd say follow your intuition. I'm sitting on $250,000 in cash with 4% interest and I'm comfortable with it parked there. Remember 2008?

Sure do. It was just 2yrs after I first started investing. Rode it down, kept buying all the way, and rode the want all the way back up. That timing helped to set me up extremely well.

[LivingAlmostLarge]

Was this your primary residence so no capital gains federally? No state income taxes? Military I assume you declare alaska your home state, but if it's in another state is there a state income tax still on it? Or a sale of home tax depending on the state?

So last year we had a rather large sum we happened to get in December 2023. I immediately paid taxes in December to the federal government and I overpaid. I knew and I added a bit just with cushion. Then I decided what I wanted to do with the rest. I invested a big chunk, by the end of 2023 into VOO and QQQ. Then I set aside Schwab high yield savings $100k. I did that in case I made a mistake or something happened. I then set aside $50k in HYSA because I thought we were buying a car.

I guess things went better since I dumped it all in at one time. But if it makes you feel better you can spread it out. I just was lazy.

[kork13]

Was this your primary residence so no capital gains federally? No state income taxes? Military I assume you declare alaska your home state, but if it's in another state is there a state income tax still on it? Or a sale of home tax depending on the state?

Correct, our primary home, no cap gains, and we do claim AK (with current plans of going back there eventually). Pretty sure no state taxes with Idaho (where the house is), filling as a non-resident, but I'll deal with that later.

[LivingAlmostLarge]

Either way I think. If you want to DCA or just dump. If you are a buy and hold buffet and bogelhead it won't matter in 20 years.