For the past few years I have been investing in equity mutual funds via equal monthly installments (dollar cost averaging). With last year's drop in the market, I was willing to put a lump sum into these funds since they were available at far lower prices. But since I did not have such reserves, I could not take advantage of that rare opportunity.
I have emergency fund created for rainy days but I do not want to touch it for this purpose since that is not an objective of emergency fund.
I am an employee who receives a fixed monthly income. There is no way that I will receive a large amount of cash from anywhere. So if I want to make lump sum purchase after a sizable stock market correction, the only way for me is to build the lump sum fund in advance. To do this, I would have to divert a portion of my current monthly contributions. Doing this would reduce my equity exposure which is currently delivering a good return, beating inflation and taxes. The objective of lump sum investment would be to improve the return so that my investment goals would be met sooner.
A strategy frequently discussed is to park the money in debt funds or other similar safe assets like a bank account or fixed income. This seems like a good idea but it comes with drawback - I do not know when the size of market drop that I am waiting for will come. If it come after 5 years, the amount will have been in debt instruments for too long, underperforming equities. The benefit of investing a lump sum would be lost (or at-least reduced substantially) due to holding under performing asset for long.
What is the best place to park the money while waiting for a sizable future market drop?