Wednesday, February 6, 2008

Investing a lump sum of cash

Invest a lump sum all at once, in one fell swoop, says a recent Money magazine Ask The Expert column.

So I’m going to break ranks here and recommend what I believe is a better strategy - namely, settle on a blend of stock and bond funds that makes sense given your risk tolerance and investing time frame, and invest it in that mix all at once.
I completely disagree with this approach. Any lump sums that I've ever received I've invested over time. The potential to buy right at the top of the market is too much of a risk for me, so I prefer to invest lump sums in stages. In a rising market, I will give up potential gains with this approach, but I'm more than willing to make that risk/reward trade off. I can always find cheaper investments after a big market run up that leaves me behind, but there is no way short of waiting for a recovery to get back any losses from buying at the top.