Time Diversification

Over the long haul, we are all cosmic dust.

True time is something even the richest billionaires can not buy more of and youth have firmly on their side.  

Time is the essential ingredient in investing not only to dollar cost average into positions but time to benefit from the growth of the economy or to recover from losses. When you have less time to invest,  less time to compound growth is overshadowed by greater potential risk of not having enough time to recover from losses.  The brutal reality in today's market where the risk free rate is ~1.5%,  if one can't accept the potential significant drawdowns of the market due to a lack of time, one has to take less risk and accept lower returns.  As Howard Marks emphasizes,  the overvaluation of equity markets at all time high does not mean markets will go down tomorrow but the risks are elevated to do so.

Continuous investing with compounded dollar cost averaging(DCA) is THE critical strategy in any market including sideways and declining ones.   Achieving time diversification in building a portfolio is a big conundrum for those who have to invest a big amount in a short period of time.  As I am trying to thaw out my money from the permafrost of low bank rates starting in April of this year, I had to decide if I would put all the money to work right away(lump sum investing) or simulate some form of dollar cost averaging over the course of the year.  But I do not like false dichotomies if either or as the philosophy of diversification advises some measure of each.

• DCA vs lump sum investing - As we are at the end of an unnaturally long economic growth cycle sustained by gov't intervention of stimulus, low interest rates and corporate tax cuts, I found it prudent to start with dollar cost averaging with equities, but lump sum invest the safer bonds.
• More importantly, I needed to learn more before jumping into equity funds. In hindsight, had I put a large chunk of my money ~4/15 in VOO/VTI, I would have had a whole lot of heart burn and a daily thrashing of a loss/profit pendulum which may have made me retreat further into my bunker.
• This blog post explains the benefits of DCA over lump sum with DCA winning out because over time, U.S. markets historically tend to go up. Lucky us. (Not so for Japan and most European/South American countries).  However if we are hit with another lost decade(2000-2012), I'll be gray haired before I can declare victory with lump sum investing.  Dollar cost averaging wins for providing mental comfort.
• Dripping dividends are key since you will compound the continually investing returns.
• I could automate transferring a fixed amount into a no commission equity fund which I've been holding off currently. 
• I try not to churn more than 5-10% of my portfolio a day in buying  so I don't make any rash decisions that would impact the portfolio unduly.  However there were days of rare opportunity that I definitely missed.
• Patience vs itchy fingers- After hearing Warren Buffet is sitting on a $122 Billion hoard of cash,  I realized I should not hurry to deploy my cash. Waiting for opportunity has not been too terrible at 2.5% dividend yield which has been slowly shrinking to less than 2%.

This beautiful foyer is from the most excellent Skyrim mod Clockwork and has working hands that chime on the hour. This mansion is more impressive in VR than a flat image can convey.  The author must have devoted hundreds of hours to bring about this complex mod that has multiple dungeons that are more impressive than what Bethesda has created in the vanilla game.