Sitting on Cash-What to do?

[Professor Disorientation]

I have about $200,000 in cash sitting in a 401K. There is a fund that I really like that has performed poorly this year. But the fund is #1 over the most recent 5 year period. The fund is a blended fund holding approximately 60% in stocks and 40% in bonds.
I am cautious by nature. Dumping $200,000 into the fund in one transaction is a bit unsettling. My thought is to dollar-cost average over the next year or two. Putting over $8,000 a month over the next 24 months fits more with my personality. Any thoughts?

[Pointedstick]

My advice:

Is your PP big enough? No? Then put it in your PP instead of your VP. If your PP is big enough (i.e. you are already financially independent), then put it all in this fund if you like the fund's fundamentals. Ignore past performance; it's irrelevant. You should choose this fund if it has an asset allocation you like and if the expense ratio is low. If it is an actively managed fund, I would be skeptical unless it's one of those funds like Vanguard Wellesley that has a jillion-year track record to back it up.

As for whether you should contribute in a lump-sum or dollar-cost averaging: do whatever makes you feel more comfortable. If you are cautious by nature, then do the cautious thing and don't look back!

[Professor Disorientation]

True. Past performance is irrelevant, but it does provide some insight. I really like the fund manager's philosophy and would be comfortable putting and keeping money in this fund for the long-term.

[sophie]

This sounds like you are contemplating a "variable portfolio" move.  So first you need to ask yourself these questions:

- How much money goes into your "can't afford to lose, protect at all costs" bucket?
- Conversely, how much money are you willing to take a gamble with?

Once you know how big your VP can be, subtract from that all your other VP investments, if any.  Then you can put that amount into your favored fund, knowing that it's a gamble you can afford to take.  Of note, if the fund is on sale and you think it's about to take off, it doesn't make a lot of sense to delay your investment.

Then, if you are sold on the PP, that's where you will park the rest of your cash if you can - retirement accounts are notorious for being non-PP friendly, particularly when it comes to gold.  Some of us have excluded our active retirement accounts from the PP for that reason, and have settled for standard Boglehead portfolios (e.g. 50/50).  I don't regard these as variable portfolios, but I certainly plan on converting them to the PP at the earliest opportunity.

There's no harm in distributing PP money in stages if that makes it easier for you.  However, realize that it's more for peace of mind than for safety.  It may be counterintuitive, but 100% cash is not the safest long term investment, because of its negative real return.

[Professor Disorientation]

The fund is The Villere Balanced Fund. I like the risk-reward ratio. I already have some money in the fund, and it has lagged this year presenting me with a favorable entry point for dollar-cost averaging.

[Professor Disorientation]

sophie,

I am expanding my dividend stocks and I especially like cumulative preferred stock. My plan is to live off the dividends and let everything else hopefully grow. Living off the dividends allows me not to redeem shares in a down market. I'm not a gunslinger when it goes to investing. Dividends have an appeal for me.

[Pointedstick]

Living off the dividends allows me not to redeem shares in a down market.

The PP has the same advantage. You can withdraw from cash or the proceeds from selling a winner. No reason to ever have to sell an asset that's down.

[MachineGhost]

True. Past performance is irrelevant, but it does provide some insight. I really like the fund manager's philosophy and would be comfortable putting and keeping money in this fund for the long-term.

Let me give you some perspective.  To get randomness completely out of the investing equation in terms of performance at the 95% confidence level, it takes 20 years of returns (i.e. 5% of winners are still due to random chance).  So 5 years is nothing but noise.  And the last 5-years has also been a QEternity bubble which is completely abnormal from the historical perspective.  The last 25-years has also been abnormal for stocks and the last 30-years has also been abnormal for bonds.  When it all ends, you better believe everyone is going to have their hat handed to them and then some.  Wall Street doesn't care though; they just sell product; you take on all the losses.

I think if you want to do dividend investing properly for retirement you've got to do it yourself, because there are no mutual funds or ETF's that currently do it properly (this is excluding overvaluation issues, of course).  You want to focus on dividend raisers AND specifically those that raise above the current rate of inflation each year AND have a long-term track record of doing so.  Just paying a dividend doesn't guarantee you'll keep up with inflation.