Hello everyone,

After far too much procrastination to be proud of, my wife and I are finally settling in on our investment strategy for retirement. Ironically, after lots of research, getting stuck, and avoiding it for months and months, we are going with a very simple strategy: a very general Vanguard index fund and a general bond index fund. We figure being intentional "lazy investors" and rebalancing annually is more than enough for us. We just want to make a wise decision, let savings grow slowly, plan for security, and not have to review & re-analyze. We're that type that finds investing - and potentially losing our savings - very stressful, and that's why we have failed to act until now. I am pleased to report to GRS readers though that I think we finally have some confidence in our plan. Better late than never, I guess!!

However, my hopefully last question before setting forth is still about fearing the worst-case scenario of investing just before a major downturn. Here are some stats to frame the question:

Ages: 30 & 34
Combined income: $86K
Cash on hand: $35K (planning to buy a home in the next 2 years, keeping in cash)
Savings in IRAs: $15K

Compared to some of what I see on GRS, these may be small numbers, but they're our world. We both work in social services so our income number may not get much bigger over the years. We've wisened up and realized that this very fact is all the more reason to invest for retirement -- but it simultaneously works to keep us skittish, too! Income will always be tight, so "gambling" seems scary. At any rate, although we were tentative about invest in the stock market for years, we at least set some money aside in Roth IRAs, and so now we're ready to roll that over.

But here's my question: We are proud to have saved what we have (in fact, we just went up two incomes for the first time in 3+ years three months ago, as my wife finished grad school, and we paid off all the loans right away), through making frugal choices about how we live. It has taken work, though we are happy with our lifestyle, too. I'm a little nervous that, relative to our income, we will be "launching" a significant chunk of cash into the stock market more or less at once -- $25K -- basically, rolling over our $15K in IRAs, plus hopefully maxing out $10K in contributions this year. $25K to start feels like a number for someone who's income is much larger than ours! But I'm not sure if it actually is risky to start with such a big proportion of our income -- or if our situation is kind of unique to the fact that we have saved, but delayed investing. I've never seen any "rule of thumb" about why starting with proportionally larger investments could be more risky, but it's a fear, nonetheless, since it is a signficant chunk of change for us. I do somewhat wish we had started small years ago, but now I feel that it is important to make up for our lost time.

Any thoughts on whether this is a rational or irrational concern? I do try to console myself that, worst case scenario, terrible timing and a major stock market crash right after we invest, we will have regained our money after a few years -- and that can't hardly be worse than 0.9% CDs for those few years.

Oh, and we DO plan to wait until the fiscal cliff has been resolved, so no *immediate* action, ironically, even though we finally have a plan.

Finally - it was GRS readers on the forum over a year ago who gently pushed me in the direction of investing despite our very real risk aversion. Yes, its taken that long to move forward! So thanks in advance for feedback this time around.

your concerns are irrational. if you stay "safe" you'll loose purchasing power. 2 steps forward, 1 step back.

I would recommend a 3 fund portfolio, a total market fund, an international fund and a bond fund. You'll need to rebalance, but it can be a single annual event. Or, you can do it through your contributions when your balances are smaller.

have you read the boglehead's investing book? if not, read it.

I agree with BFs 3 fund suggestion.

And I agree that your fears are irrational. But that does not mean they should be dismissed. There is value to being able to sleep at night.

What you might consider is putting in a little of your balance every month for a year. If you want to invest $24000 over the next year, put $1000 each into a bond fund and total stock market fund every month. I realize you have only $15000 but if you also make contributions during the year you will build up the cash to be able to complete your fund transfers during the year. This approach is known as dollar cost averaging of course. There are many reasons to put money in this way. In your case I suspect it will be emotionally easier than seeing a big chuck put at risk all at once.

Also remember that most of us started with just as little as well. It takes years or decades to build up but it does.

Since you work in social services, are you government employees? Do you work for a nonprofit?

Thanks to both of you for your replies. Doinghomework, I like your suggestion - though, since we do feel a little like we are 'catching up' (recognizing we should have done this several years ago, when we started to have the savings for IRAs), there's also a part of me that wants to rush and max out our 2013 contributions right away, effectively gaining an extra year! I guess we will need to choose between these two emotions -- feeling like we are late, and feeling timid about putting a lot in at once.

Doinghomework, after your comments I read some articles weighing in on whether or not dollar cost averaging is a good strategy, aside from the peace of mind in our scenario. I was wondering about a scenario where you go all in, but with a more conservative allocation, then move toward your desired riskier allocation -- say, if our goal is to be at 70/30 stocks/bonds, but don't want to put down the lump sum, what if we put the lump sum in at 80/20 stocks/bonds and rebalance monthly?

I'll be new to Vanguard and to rebalancing when we start, and my long term goal is to keep it simple and only rebalance annually, so I don't know whether such a plan is simply too complicated relative to the hypothetical benefit.

PS. To answer your question, we both work for nonprofits, one of us in mental health services, which is in turn primarily reimbursed via Medicaid, so heavy government involvement.

You can have it both ways. Make your contribution as early as you want into a money market account at Vanguard then shift into stocks/bonds according to a plan during the year.



I commend you for doing your own research on the issue. The truth is dollar cost averaging is not going to be the best approach when the market is moving up (or down) consistently. All that it really does is smooth out the effect of volatility that no one can predict. It should also give you some peace of mind since your transactions are not so big.

DCA used to be pushed by commissioned sales people since they made larger % commissions on small transactions. For that reason you will find a lot of debate about it and much of the debate raises good points. Personally I do not use DCA consistently for personal reasons but I do invest consistently and that means that I end up using DCA in practice. But for you, I think it is a good approach for both financial and emotional reasons.