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When to Deploy Capital

Deploy Capital

|| Buy Now and smile!

One of my clients asked me what I think is a hard question: When should I deploy capital? I'll try to answer that here.

There are three main things to consider in using cash to buy or sell assets:

  • What is your time horizon? When will you likely need the money for spending purposes?
  • How promising is the asset in question? What do you think it might return vs alternatives, including holding cash?
  • How safe is the asset in question? Will it survive to the end of your time horizon under almost all circumstances and at least preserve value while you wait?

Other questions like “Should I dollar cost average, or invest the lump?” are lesser questions, because what will make the most difference in ultimate returns comes from the above three questions. Putting it another way, the results of dollar cost averaging depend on returns after you put in the last dollar of the lump, as does investing the lump sum all at once.

Thinking about price momentum and mean-reversion are also lesser matters...