What investing approach should my wife and I take to pay ourselves back from an unavoidable loss in our non-retirement investment accounts?
My wife and I found ourselves in a difficult situation when we had to move for her job. We had to purchase a new house in our new city, but hadn't yet sold our existing house. We needed a 20 percent down payment on the new house, so we liquidated some non-retirement investments, understanding that we'd have to pay capital gains on the amount we liquidated. We've now sold our old house and want to "pay ourselves back" and reinvest the amount we had liquidated. I'm hesitant to buy back in to our mutual fund knowing that the market is so high and most experts see a significant correction on the horizon. What's the best way to get a large amount of money back into our investment portfolio?
Well - not to try and time the market- but it has dipped since you submitted this questions. If you are concerned about the market being at highs- consider dollar cost averaging back into an investment portfolio appropriate for your situation and financial goals.
Put in a set amount each month (ideally automatically) until the entire amount is reinvested.
First, I would probably advise against using mutual funds as an investment vehicle. Because of their active management (and other reasons), a mutual fund can generate taxes that would otherwise be avoided.
Second, I see that others have already poured the traditional kool-aid and have suggested dollar-cost-averaging, be diversified, stay out of cash, and don't bet on unicorns (okay ... I made that last one up). All of these are acceptable strategies. But I doubt if that is what you are looking for.
In our firm, we embrace a dynamic-allocation investment strategy; one that intentionally side-steps major market declines so as to avoid significant losses. Depending on how close our clients are to their retirement, we may decide to move them into a fairly conservative position that becomes less so with each rebalancing. In this, our goal is to help clients avoid the detrimental impact of having to withdraw from their retirement funds at the outset of a market decline. Are we timing the market? Not really. We are not trying to anticipate what the market will do (we already know it will either go up, down or sideways). Instead, we are trying to mitigate against a possible and untimely loss as we then adjust to what the market actually doing.
My advice: stay out of mutual funds and use ETFs, start conservative and become less so as you gain confidence, stop listening to CNBC and other business news channels (unless it is late at night and you are watching an infomercial about a new pillow), and take a year or so to get back into the market with small investments made each month.
I'm sorry you had to go through that but I'm glad you recouped the money and at least sold for a gain and not a loss. Hopefully, you used that liquidation event to do some tax-loss harvesting as well to offset the capital gains taxes you'll owe. For buying back into the market, if it's a sizable sum of money, I would dollar-cost average in. As an example, if I had $100k I wanted to move into the market, I could say I'm going to do so for the next 4 months with $25k at a time. This allows you to slowly ease into the market and average out your cost basis as opposed to buying $100k all at once. It sounds to me like you would really benefit from meeting with a financial planner. They can help you figure out the best course of action, including steps you can take to mitigate the tax consequences you're facing. I hope this helps!
I know you want your money to go to work for you as soon as possible, but the best way to get back in the market would be to dollar cost average your way back in. What does that mean, in short, it means slowly investing back into the market the same amount over time. When I do this for clients, I do this over a 10 week period if they want to get invested immediately. So every week I invest 10% of the funds back into the market. Or it could be 10 months or really any amount of time. It's more about sticking to the plan and not trying to time the market.
I see you posted this question two days ago. The market has dropped in those two days, so you got lucky. I'm posting this answer to point out to as many readers as decide to click on your question, that "experts" don't know any more than you do about the direction of the stock market. If they did, they wouldn't be trying to earn a living by publishing investment advice. They'd be sipping Cristal on their yacht in the Riviera.
You made a rational decision to sell stocks in order to cover your near term cash flow needs. As a result you have taxes due for 2018 that otherwise would not be due for many years. It's not the end of the world. Presumably the investments you sold are now back to where you sold them -- or even below, I hope. The best way to get a large amount of money back into your investment portfolio is to buy, now, regardless of your fears. Please know that the best time to buy stocks is at the point when fear is at its highest.