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I have approx. $250K sitting in Vanguard Prime MM fund. I'd like to move this money to a
another Vanguard fund where it can earn a better yield than it is currently.
I'd then like to dollar cost average a fixed monthly amount of money from that fund into some more Vanguard funds over a period of a year or two max. The goal being to get better returns than I am getting now.
Where you would you park the initial money from the money market fund and which fund or funds would you dollar cost into ?
Why dollar cost average it in? Why not just toss it in as a lump sum? Lump sum investing generally beats out dollar-cost averaging over the long term.
Do you have any other investments with Vanguard? If yes, what are they? If no, I'd consider either Wellington or Wellesley if you'd like to keep things simple.
I would definitely not dump it all in, especially as we are talking about a quarter-million, not a couple thousand. If you've had this much money in a money-market fund, you're probably at least somewhat risk-averse, and DCA is exactly the strategy for you. I don't understand why DCA gets bashed so much on this forum. You never know when the next financial or economic crisis is going to occur and only investors with titanium nerves will actually be able to watch that $250K decline to $150K and not lose sleep over it. So unless your nerves are made of titanium, don't dump it all in. DCA it in.
As for your actual question about best funds, I'll let someone else answer that.
The market is priced so high right now I'd be afraid to start a new position in a stock unless I felt it would continue to grow no matter what.
You could look at some of the tech stocks which have been flying. But I would never put the entire amount. You could start with a few small small positions and dollar cost average during dips in the stock. That's what I do. I also reinvest dividends so I'm getting a small amount of shares quarterly.
The best performers in my portfolio are the tech/chip stocks. Also Boeing which I still has a lot of room to grow and pays a dividend. That could be something to look at.
You need to research companies and find a few you think will grow over the next few years. However, this is a tricky time in the market. Everything is so overvalued, I would start small. Do not put the whole lump sum in.
I don't understand why DCA gets bashed so much on this forum. You never know when the next financial or economic crisis is going to occur and only investors with titanium nerves will actually be able to watch that $250K decline to $150K and not lose sleep over it.
But DCA doesn't spare you from that, as its endpoint is the same: 100% of the funds invested. It just takes longer to get there. Once the money's in, a market slump will affect it the same way no matter how it got in.
If you can't watch $250k decline to $150k without doing something rash, then that $250k should not be invested in equities. Pretending that DCA affords some protection from that is silly.
Without knowing what your pucker factor is and why and how critical that money is in 13 years i would not recommend a thing . But dca is generally going to reduce your gains no matter what you do.
I would not go with bnd either. Compared to fidelity's total bond fund it lagged every time frame over and over .
But DCA doesn't spare you from that, as its endpoint is the same: 100% of the funds invested. It just takes longer to get there. Once the money's in, a market slump will affect it the same way no matter how it got in.
If you can't watch $250k decline to $150k without doing something rash, then that $250k should not be invested in equities. Pretending that DCA affords some protection from that is silly.
I think the idea is that by spreading out your investment over time it makes it less likely you'll hit the worst case scenario, putting all of your money in at the very peak, then the market immediately tanks.
On average, I would expect spreading out the investment over time will probably make the investor come out behind compared to putting it all in right away, since the market is usually up over a multi-year period. But for any individual investor, there's no way to know apriori if the market is at its local peak.
With markets up 2/3's of the time and down only 1/3 you are betting against the house as far as dca doing much good return wise.
It can reduce risk temporarily but once you are in you are in for the same ride only with likely a higher cost basis.
I always say if dca really was an advantage we would all reach our allocation ,sell everything and start from zero again.
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