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About a year's worth, plus I have an $80K HELOC I could tap into if a things got really sticky. However, I would prefer not to.
Yes I am familiar with DCA. One thing I considered was to gradually dribble all or most of my cash into my portfolio over a long period. Is this what you were going to suggest? What would be the ideal length of this period? 10 years?
I would suggest you maintain your current savings. Never consider your home as a source of income, and regularly, like each pay period, allocate a comfortable amount to an investment fund. You may want to start your fund with 5-10 thousand from your savings. Personally, I think many fail with their investment plan because they never get into the habit of paying themselves first. The key word is habit. Budget for your investment fund just like you would a car payment, but instead of paying money to a bank your paying yourself.
Now the hard part. No matter what happens in the future, never tap into your invest fund until you retire. In the beginning, only look at how your fund is doing every 6 months. There is a sound reason for this, trust me.
As for a diversified fund, there are many here who have made good suggestions where to invest. I know they like to use bandwidth to dissect the merits of one or another but they are sincere and truly want to help.
The advice I'm sharing is the same advice I shared with my son in December. He started out in a vanguard fund (VTSAX).
To the OP, no amount of well intention-ed advice from folks here will help you unless you change your view point. Given that you've few more decades to go before retirement, I'm quite sure you're going to see periods of boom & busts. By just putting majority of your investments in cash, you shall be doing a great dis-service to yourself & your loved ones. I would say I was in a similar state of mind about 6 odd yrs ago but one day I decided to bite the bullet & get headlong into learning more about investing. It's not a decision that I have regretted since.
As pointed out by eccotec start with a MF which meets your criteria. I would encourage you to be an active index investor, whereby you monitor your investments as well as the market's as frequently as you can only from a point of view of understanding its vagaries but over a period of time this will increase your understanding not only of your self as an investor (your real risk appetite) but also - hopefully - help you uncover other investment opportunities, within the realm of your investment appetite.
Thanks for the advice. I think I will increase my equity allocation gradually.
I have a mortgage at 2.9% fixed until 2019 , so I guess one could argue that I'm letting a nice opportunity slip by, by not investing more in stocks. One option I've considered is to pay down my mortgage with cash as quickly as possible and then make "mortgage payments" into my portfolio to take advantage of DCA.
OP - you have 30 years till retirement, a 2.9% fixed rate mortgage, and you are 70% in cash? That is quite ... surprising.
It seems that you have a low risk tolerance - both willingness and ability (risky jobs.) Still, as mathjak says, risk means a different thing from volatility when you are talking about 20+ years horizon.
First, take a deep breath and ignore Eliiot Wave and all that crap. Yes, stock markets go up and down. None of these idiot theories can predict it. Don't be pursuaded or scared by zealots (they remind me of stupid Fox News / MSNBC people with political agendas.)
Second, in 20 years, stocks are not going to give you a negative return. Even from 1964-1981 when Dow went nowhere, you got beaucoup dividends. And if you DRIP, it is better of the stock market stays lower while you are actively putting money in it. So consider increasing allocation to stocks to at least 50%. I'd say more but I don't want to scare you off (though there is nothing to be scared about.)
Third, don't pay off your mortgage!!! I assume you get a tax deduction. You can easily get more than 2.9% pretax (2.9% * (1-your marginal tax rate, say 25%)) = 2.9% * 0.75 = 2.175% interest on almost anything. Even S&P yields 2%, long bonds will yield even more. So paying it off instead of investing the money is not a good idea.
Beyond that, decide your allocation. I'd suggest 6 months expenses in cash, rest in 50% stocks, 25% bonds, 25% preferred stocks. I don't know the intricacies of Canadian tax law (RRSP vs TFS-something vs taxable; dividend tax withholding and so on) but keep an eye on those as you decide which assets to buy in which account. Then go for low-cost ETFs or funds.
Also echoing mathjak, DCA works better in a declining market, which is not often the trend. If you have a lot of money to invest, bung it all over a short time (6 months) into the market, rather than stretching it out for 5 years. More likely than not, you will lose more dividends and price gains than you will gain by averaging.
The assumption there is a federal tax savings associated with carrying a mortgage is a big assumption. With the lower rates in recent years a lot of folks have to use the standard deduction. We have to this year because of our mortgage refi last year that dropped our rate to 2.5%
less than 1/2 of homeowners can take any deduction at all other than standard.
some states it is higher than others and the higher income brackets have more and more folks itemizing but since most of the country is in the lower income levels the deductability of things may or may not pan out.
OP - you have 30 years till retirement, a 2.9% fixed rate mortgage, and you are 70% in cash? That is quite ... surprising.
It seems that you have a low risk tolerance - both willingness and ability (risky jobs.) Still, as mathjak says, risk means a different thing from volatility when you are talking about 20+ years horizon.
First, take a deep breath and ignore Eliiot Wave and all that crap. Yes, stock markets go up and down. None of these idiot theories can predict it. Don't be pursuaded or scared by zealots (they remind me of stupid Fox News / MSNBC people with political agendas.)
Second, in 20 years, stocks are not going to give you a negative return. Even from 1964-1981 when Dow went nowhere, you got beaucoup dividends. And if you DRIP, it is better of the stock market stays lower while you are actively putting money in it. So consider increasing allocation to stocks to at least 50%. I'd say more but I don't want to scare you off (though there is nothing to be scared about.)
Third, don't pay off your mortgage!!! I assume you get a tax deduction. You can easily get more than 2.9% pretax (2.9% * (1-your marginal tax rate, say 25%)) = 2.9% * 0.75 = 2.175% interest on almost anything. Even S&P yields 2%, long bonds will yield even more. So paying it off instead of investing the money is not a good idea.
Beyond that, decide your allocation. I'd suggest 6 months expenses in cash, rest in 50% stocks, 25% bonds, 25% preferred stocks. I don't know the intricacies of Canadian tax law (RRSP vs TFS-something vs taxable; dividend tax withholding and so on) but keep an eye on those as you decide which assets to buy in which account. Then go for low-cost ETFs or funds.
Also echoing mathjak, DCA works better in a declining market, which is not often the trend. If you have a lot of money to invest, bung it all over a short time (6 months) into the market, rather than stretching it out for 5 years. More likely than not, you will lose more dividends and price gains than you will gain by averaging.
dividends are not a problem if you give them up, but gains over all are . what is a problem is typically markets spend 2/3's of any long period of time up and only 1/3 down.
that makes dca generally not the best way. you really have to cherry pick the time frames for dca to have worked better. you can almost randomly pick the times it didn't and be right.
Last edited by mathjak107; 03-05-2015 at 02:28 AM..
dividends are not a problem if you give them up, but gains over all are . what is a problem is typically markets spend 2/3's of any long period of time up and only 1/3 down.
that makes dca generally not the best way. you really have to cherry pick the time frames for dca to have worked better. you can almost randomly pick the times it didn't and be right.
You brought up a interesting point from your last post - see highlighted section. My intuitive thought of DCA has been the same as yours though folks I've spoken to - agents, articles as well as other retail investors like me - have vouched that DCA is the way to go. I haven't kept DCA for more than 3mos since I began actively investing 4yrs back. Of course, the 401k's are a different story .
if dca was really better we would all reach our desired allocation , sell it and start from zero again.
obviously you would not have done well at all doing that in comparison to lump sum..
^^^^Excellent point here. "Not selling" is kind of like buying. If you really thought buying in a lump sum did not make sense because you want to DCA, then you should sell and then DCA back into the same funds.
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