No. of Recommendations: 3
How does one go about investing a Large LUMP SUM. At retirement I expect to recieve a Lump Sum payment - representing 50-60% of my retirement savings.

I plan on taking 5 years of retirement expenses out of this amount and keeping it aside in cash/cash equivalents as part of my "fixed income" allocation. This will leave me eventually investing most of the remainder in equities to acheive a balanced portfolio.

My concern is that - It doesn't seem prudent to invest most of your savings into the Market on any one specific day. Intuitively it seems that I should invest this over some period of time in order to cost average my investments.

Does this make sense? I would appreciate anyone elses opinion on this question.

Is this a lump sum pension payment, or another type of payment where you haven't previously had control over the money, or a rollover from a 401(k) or other qualified plan, where you have had control over the money?

Because if it's a 401(k)/qualified plan rollover, and you are happy with the current allocation, then just mimic what you have in the current plan. You had it invested yesterday, you got the money today, and you should re-invest it tomorrow. Holding it out would be a version of timing the market.

If it's a lump sum pension payment and you haven't had it as part of your current allocation, then if you don't feel comfortable investing it all at once, dollar cost averaging over a period of time is a reasonable option. Because, on average, the market tends to go up, on average, you would come out with more money if you invest all at once. However, if you happen to choose the day that the market peaks that year to invest, especially if you are investing in mutual funds, you may end up with less money than you would have if you had dollar cost averaged in over a time period. So it's really more of a decision of which will help you sleep better at night.

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