deploying new capital... in stages or all at once?

Discussion in 'Risk Management' started by stockmarketbeginner, Jan 21, 2018.

  1. Hello,

    Is it standard practice to deploy new capital in stages? I'm looking to significantly increase my S&P 500 position as well as some select ETFs.

    Under normal circumstances, it seems like staging the deployment over time would make sense. That way you don't accidentally do all of your buying on the worst price of the year, or do all of your buying right before a crash.

    But we have an unusual circumstance with the new tax cuts. It seems like it would be good to front-load the deployment before all of stocks get re-written upward from the analysts. I could see this current bull run to go another 5 percent, and then essentially slow down after all the re-writes and re-pricings. After all of the companies have reported first-quarter earnings in the new year, the re-pricings from this dramatic tax cut will be priced in. So staging things over time would mean missing out on perhaps most of the gains for the year.

    Any thoughts on this?
    murray t turtle likes this.
  2. truetype


    It's an emotional, not a financial, question. You sound to me like someone who should $cost average in.
    murray t turtle and aldrums like this.
  3. Simples


    Very basic: Cash is King vs Risk Capital.

    In my limited experience, you'll ALWAYS regret deploying too high percent of capital. If you can stomach the inevitable DD, may/may not be worth it (luck). If you sell during DD, chances are you lose out on that deal. Not because of "sharks", not because of "evil markets", but just you being dumb and getting freaked out by normal moves in the market. Putting yourself in a position where you have to endure a big DD is not the wisest move.

    So there's a balance in there, and also good to diversify so that you don't bet all on one horse (USA equities).

    Best may be to create plans to inject capital for rest of projected life, so you always have some cash in sidelines pouring in at any time at most recent opportunity.

    When greed moves you, fear and stupidity may do so also. So better think forward 20 years, and then some funds start to look attractive.
    murray t turtle likes this.
  4. Jack1960


    Be careful. Market is very high. If you are serious, then follow a proven method over a very long time in real life and not act based on opinion or just backtested garbage.
  5. tommcginnis


    The manner of your capital's deployment should be no different now than it would be 10-24 months from now.

    Expected $/day. Reward-to-risk. Reward-to-risk. Dollars per day. Every day. If you would not rush 24 months from now, don't do it now. Do not marry positions, but let the goal of satisfying "What is my best (capital) deployment, today?" be your once-and-only guide.

    Do you have small-ish positions?
    Are they uncorrelated (if balance is sought)?
    Are they truly duplicative (if concentration is sought)?
    What is your long-run allocation goal?

    Satisfy those questions, and then cycle back with
    "What is my best (capital) deployment, today?"

    Sometimes, the mostest bestest plan, may indeed be the simplest, too.
  6. ironchef


    IMHO, it all depends on your investment time horizon.

    If your time horizon is decades you shouldn't be timing the market, and stages really mean you are timing the market:

  7. Junky


    The tax plan has been finalized for a month now. Markets are forward looking so what's to say the valuations haven't already been repriced?

    I personally wouldn't be adding significant exposure to this market as a medium or long term investment right now. Odds are a correction and or recession are coming within a year or two (or longer). Valuations are high so missing out on the 30-40% downside will make a massive difference in your long term returns. I'm more comfortable missing out on the upside at these levels than to get caught with the downside.

    That's just me though.
  8. tommcginnis


    You might want to test your thesis on market data over the past (Ohhhh, let's say, 'decade') before you recommend it to others. :rolleyes:
  9. Junky


    I'm not concerned about the last decade. I'm concerned about the next decade. Like I said above, I'm more comfortable waiting it out. I didn't say others shouldn't be diving in head first. To each their own.

  10. tommcginnis


    And in fact I'm long-term bearish ON THE CURRENT P/E....
    (Which is to say, out more than 12 months, we either drop the p, or raise the e -- but right now, they're cooking on a fire I could not mess with. But when I hear about waiting for 30%-40% drops -- "reasonable" people have been singing that song for 10 years. And when the phoo-phoo hits the fan, they are the last to buy back in.)
    Over a beer ("Tom! It's barely noon!"), I bet we'd agree on more than we disagree.
    #10     Jan 22, 2018