Suppose you suddenly have a large amount of cash (relative to your net worth) that you would like to invest. E.g., you just sold your house or you received an inheritance.

If you invest all this money at once, and the market is at a local high point, then you could easily lose about 5-10%. On the other hand, if you wait for a dip, and the market shoots up, then you could similarly lose 5-10%.

Is there a good strategy to balance these two scenarios to reduce the risk? Would it make sense to simply invest 20% a week for 5 week (or some other time frame)?

I don't think what you invest in is relevant to this question, but if it is, let's presume you already have a balanced portfolio of ETFs that you will increase.

4 Answers 4


Dollar Cost Averaging would be the likely balanced approach that I'd take. Depending on the size of the sum, I'd likely consider a minimum of 3 and at most 12 points to invest the funds to get them all working. While the sum may be large relative to my net worth, depending on overall scale and risk tolerance I could see doing it in a few rounds of purchasing or I could see taking an entire year to deploy the funds in case of something happening. I'd likely do monthly investments myself though others may go for getting more precise on things.


I think a larger issue is that you're trying to do market timing. Whether you had a large or small amount of money to invest, no one wants to put the money in to watch it go down.

You can't really predict if prices in a market or security will go up in six months (in which case you want to put all your cash in now), of if it will go down (in which case you'd want to wait until the bottom), or if it will skitter around (in which case you'd want to only buy at the bottoms).

Of course, if you're magic enough to nail all of those market conditions, you're a master finance trader and will quickly make billions.

If you're really concerned with protecting your money and want to take some long positions, I'd look into some put options. You'll of course pay the fees for those put options, but they'll protect your downside.

Much of this depends on your time horizon: at the age of 35, someone can expect to see ~6 more recessions and perhaps ~30 more market corrections before retirement. With that big of a time range, it's best to avoid micro-optimizing since that tends to hurt your performance overall (because you won't be able to time the market correctly most of the time).

One thing that's somewhat reasonable, if you have the stomach for it, is to not buy at somewhat-obvious market highs and wait for corrections. This isn't fool proof by any means, but as an example many people realized that US equities basically were on a ~5 year up run by December 2014. Many people cashed out those positions, expecting that a correction would be due. And around late summer of 2015, that correction came. For those with patience, they made ~15% with a few mouse clicks.

Of course many others would have been waiting for that correction since 2010 and missed out on the market increases.

Boiled down:

  1. Market timing can work, but it's notoriously hard to do correctly. The market has made a lot of people broke who were trying to time it.
  2. Put options can work to limit your downside. They make sense primarily in shorter time horizons (weeks/months).
  3. The longer your time horizon, the less you really need to worry about 300 point up/down swings in the DJIA.

Getting the right diversity of investments helps buffer you from some of the short term market swings.

If you need advice it's worth spending a small part of that money on a consultation with a financial adviser, who can talk to you about your goals, your time horizon, and your risk tolerance and recommend a good starting distribution. (Free advice from brokers risks being biased by their commissions.)

Once you have that plan, uou need to decide how to execute it. Low-fee index funds are a good way to get started until you learn more, and for many of us that's all we ever need.

Then you need to decide whether to invest it all at once or dollar-cost average. I've heard arguments both ways; DCA does mean you risk missing some immmediate gains, but also reduces your risk of buying at a temporary high and taking some immediate losses. For me DCA seemed to make sense, but that's another decision for you to make.


What you put that money into is quite relevant. It depends on how soon you will need some, or all, of that money.

It has been very useful to me to divide my savings into three areas... 1) very short term 'oops' funds. This is for when you forget to put something in your budget or when a monthly bill is very high this month. Put this money into passbook savings. 2) Emergency funds that are needed quite infrequently. Used for such things as when you go to the hospital or an appliance breaks down. Put this money in higher yeald savings, but where it can be accessed. 3) Retirement savings. Put this money into a 401-K. Never draw on it till you retire. Make no loans against it. When you change jobs roll over into a self-directed IRA and invest in an ETF that pays dividends. Reinvest the dividend each month.

So, like I said, where you put that money depends on how soon you will need it.

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