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.
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'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 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.
One of the biggest mistakes investors can make is holding too much cash. Fear from the 2008 financial crisis coupled with the anxiety about the current market high have left many investors sitting on the sidelines. Those who still haven’t returned to equities are waiting for the “all clear” signal to jump back in, but unfortunately, such a signal doesn’t exist. By the time you finally feel “good” about the market, you will have already missed most of the upside. The best thing you can do with your cash is to put it back to work now so you can still benefit from growth over the long term.
Overall, putting your money to work with a well-diversified investment strategy can help you get a larger return, even if a market correction comes sooner than expected. If your money is invested across asset classes with exposure to equities, fixed income and alternatives, you can make your strategy work with your long-term goals as well as your risk tolerance despite a potential bear market on the horizon. Having investments in the asset classes that may currently be out of favor will help you when the markets inevitably turn and you need to rebalance your portfolio. Don’t focus too much on the pending market correction and remember that a good portfolio has assets that have a negative correlation – when one part of the portfolio goes up another tends to go down, because if everything in your portfolio is going up, you’re not diversified.