3

We'll likely be moving ~$100,000 (two Roth IRAs, about 80k/20k split) from a mix of Nationwide funds to a combination of Vanguard whole-market stock and bond index funds (details below). All else being equal, I'd prefer to move all of the money at once to 1) have enough money to buy Admiral rather than Investor shares 2) simplify the process.

That said, I'd prefer not to take on unnecessary risk, and would dollar cost average the transfer if it would have financial/risk benefits. Would dollar cost averaging make sense in this situation, or would a lump sum transfer work since the money is already in the market? (I'm not sure how similar/different my current and planned investments are, or how important this is).

Current Investments:

  • NWHJX Nationwide Bailard International Equities Fund Class A 11.90%
  • NBDAX Nationwide Bond Fund Class A 14.80%
  • NWHVX Nationwide Geneva MidCap Growth Fund Class A 12.50%
  • NMFAX Nationwide Growth Fund Class A 38.00%
  • NWGPX Nationwide HighMark Small Cap Core Fund Class A 11.60%
  • NWJCX Nationwide Ziegler NYSE Arca Tech 100 Index Fund Class A 11.20%

Planned Investments (percentages still in the works):

  • VFIAX Vanguard 500 Index Fd Admiral Shs 35.00%
  • VTSAX Vanguard Total Stock Market Index Fd Admiral Shs 35.00%
  • VTIAX Vanguard Total International Stock Index Fd Admiral 10.00%
  • VBTLX Vanguard Total Bond Market Index Fund Admiral Shares 20.00%
  • Not pertinent to your question, but I'll just mention that VFIAX is a subset of VTSAX, so I would leave it out unless you intend to be overweight on large- and medium-cap companies. The bottom 3 funds are all you really need. – Craig W Jan 16 '17 at 14:32
  • 1
    @CraigW - I was actually thinking about this as I read Common Sense on Mutual Funds - thanks for the input. – Jeff Levine Jan 16 '17 at 14:33
  • 1
    The planned investment adds to 100%, but you said 2 IRAs. Not that it makes much difference, but this aspect remains unclear. – JoeTaxpayer Jan 16 '17 at 21:00
5

As mentioned by others, dollar cost averaging is just a fancy term for how many shares your individual purchases get when you are initially adding money to your investment accounts.

Once the money is invested, annual or quarterly rebalancing serves the purpose of taking advantage of higher rates of growth in particular market sectors. You define the asset allocation based on your risk profile, time to retirement, etc., then you periodically sell the shares of the investments that have grown faster than the rest and buy more shares of the investments that are relatively cheaper.

  • 1
    Nice answer to the piece of the question that went unasked. The more important piece, IMHO. – JoeTaxpayer Jan 17 '17 at 15:56
  • @NathanL - Thanks - to make sure I'm understanding this correctly, is this essentially a "who cares, it will handle itself with rebalancing over time"? – Jeff Levine Jan 17 '17 at 18:52
  • @JeffLevine - If experts recommend that you have an 80/20 Equities/Bonds mix due to your current age, that will be as true tomorrow as it is today. Rebalancing simply keeps you close to the recommended mix. Yes, don't worry about it. Pick your allocation, rebalance to stay close to your preferred risk profile and exposure. – Nathan L Jan 17 '17 at 22:18
3

Dollar cost averaging doesn't (or shouldn't) apply here. DCA is the natural way we invest in the market, buying in by a steady dollar amount each pay period, so over time we can buy more shares when the market is down, and fewer when it's higher. It's more psychological than financial. The fact is that given the market rises, on average, over time, if one has a lump sum to invest, it should be deployed based on other factors, not just DCA'd in. As I said, DCA is just how we all naturally invest from our income.

The above has nothing to do with your situation. You are invested and wish to swap funds. If the funds are with the same broker, you should be able to execute this at the closing price. The sell and buy happen after hours and you wake up the next day with the newly invested portfolio.

If funds are getting transferred from broker to broker, you do have a risk. The risk that they take time, say even 2 days when funds are not invested. A shame to lose a 2% market move as the cost of moving brokers. In this case, I'd do mine and my wife's at different times. To reduce that risk.

  • Thanks - not the same broker, I'd be buying directly from Vanguard. – Jeff Levine Jan 16 '17 at 13:17
  • Updated answer to address this. – JoeTaxpayer Jan 16 '17 at 13:21
  • Thanks - updated my question to reflect the weights of each Roth IRA (one is much bigger than the other). That said, I understand your point.Sorry, should have included this from the start. – Jeff Levine Jan 16 '17 at 13:33
1

The first step I would do is determine the asset class mixture for your current portfolio and the mixture for your new one. If they are the same and all you are doing is changing the funds that you use to invest in that mixture of asset class then just do the change all at once. In this case there is no market risk as you are just swapping funds (hopefully to ones that you feel will better track the underlying asset classes).

If you are also changing your asset class mixture, then it depends on how large the change is. I would still do the whole change at once. But if you are worried about fluctuations then you could slowly rebalance into your final position by taking a couple of intermediary steps. I would still change all of the fund first but maybe in a mix closer to your current asset mix and then over the next couple of months adjust the ratios to reach your final desired asset mix.

  • At a glance, it looks like my current and planned allocations are similar - I'll analyze in more detail, but thanks for the input, I appreciate it. – Jeff Levine Jan 16 '17 at 13:11

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.