Before we jump into this post we know that in 5 to 10 years our starting point hardly matters.
We also know that we’re all human and we like to get off on a good start in anything that we do, especially when it’s dealing with our hard earned capital!
What follows is our belief of the best possible way to get started on good footing, and keep a positive investment allocation.
There are always outliers and unique events – this is a template, and loosely the starting point for funds entering the capital markets … but by no means a written in stone … exact map.
Let’s start with the easy
New investment dollars that came from … say the backyard … under your sofa … your overfilled emergency fund, or some other super safe and stable asset class . … almost certainly should be work into Capital Markets over time.
Depending on the situation, the amount, the time horizon … the time frame may vary from months to quarters or even longer depending on the situation to gain entrance to the Capital Markets …
A typical scenario would be to divide the time frame into equal parts and allocate over that period of time.
The goal is to take advantage of the ups and downs upon entrance into the Capital Markets ….
Funds such as 401k rollover’s, current investment portfolios that are moving from one pocket to another most certainly do not need this staggered entrance into the capital markets as they were invested already.
An accurate statement can be “If it just came out of the capital markets it can go back into the capital markets” even though it may be cash today.
Here are the gray areas
Of course there are gray areas that need judgment…
A large block of stock options sold. The funds where IN the Capital Markets but depending on the size and the situation, it may not make sense for these funds to be moved directly back into the capital markets all at once.
A sudden liquidity event such as the sale of a business – yes in essence it was in a investment that had volatility similar to the capital markets, but in most cases, risk reduction is desired and a staggered entrance along with a conservative allocation may be the best.
Inheritance..
It all depends on the form?
Some inheritance come in the form of cash … others may come in the form of investments that are already invested – again depending on the situation, it may make sense to stagger entrance, or it may be just fine to continue the allocation or even re-allocate in one swoop.
Bottom Line, there is no exact way for all situations, but there are ways to go without raising the blood pressure!
Have a Great “Good Entrance Capital Market” Day!
John A. Kvale CFA, CFP