How to invest a lump sum. What if you buy at an all-time high right before a market crash? It can be an overwhelming anxiety-inducing puzzle. You can mitigate the risks and buy decisively.

So, you received an inheritance, sold a cottage or a boat, or ended up with a chunk of cash from dividends paid in your portfolio or from rebalancing your portfolio. Regardless of where the money came from, you want to invest it; but you’re hesitant, you don’t want to make mistakes.

You have to come up with a plan that identifies where you’re going to invest and the timing of these investments.

Plan Where to Invest Your Lump Sum

Before deciding when to invest you have to figure out which assets you want to invest in. To choose the right ones for you, review your investment goals and review your current portfolio. Don’t have a portfolio yet? No worries, keep reading, we’ve got you covered.

Identify your investment goals

What do you want from your investments? Income? Growth? A mix of both? In what proportion?

Goals can change; in our earlier accumulation years, we might focus on growth and be willing to take more risks with speculative or volatile investments. As we get near or are in retirement, income can become more important.

Revisiting your goals helps to determine your:

• Asset allocation: all stocks, or a mix of stocks, ETFs, bonds, GICs/CDs, etc.
• Sector allocation: the economic sector(s) you’re going to invest in, and in what proportion.

Review your current portfolio

If you have a portfolio, review it. Identify adjustments to make to your existing investments and areas to strengthen with your new money.

Overweight sectors or stocks make your portfolio more vulnerable. You could invest the lump sum into other sectors or industries to rebalance or sell some of your holdings in overweight sectors. If you have overweight stocks, think about selling some shares.

Stocks representing very little of your portfolio, e.g., 0.75%, 1.8%, don’t do much; even if they double in price, you won’t feel it. If you’re confident and like your lightweight stocks, consider buying more.

Loser stocks hurt. Examine them thoroughly and choose whether they’re worth keeping. See 7 Reasons We End Up With Loser Stocks, What To Do About It.

After reviewing, compare your portfolio to what you want it to be, and come up with your game plan. Invest more in stocks you already own, in new stocks to benefit from other sectors and industries and make your portfolio more resilient, a bit of each? Build a list of good candidates for your portfolio with this checklist.

Don’t have a Portfolio yet?

If the lump sum is seed money for your brand-new portfolio, identify your investment goals; next, find economic sectors you like and understand; then, set the percentage of the sum to invest in each of the sectors and how many stocks you want. Here are resources to help you get started.

Plan When to Invest Your Lump Sum

Knowing where you’re going, it’s time to choose when to click the Buy button, but your emotions get in the way. You fear putting your money in stocks only to see them plunge soon after. You hate the thought of waiting for a “good price to buy” only to see it continually rise and miss out on a good thing. You’re anxious about cash sitting in your account doing nothing.

All at once?

Financial literature says the right time to invest is today so that your money is in play, working to accrue wealth, not lying dormant. Ok then, invest all of your lump sum ASAP, done! I’m guessing you don’t feel like doing that. I understand completely.

You could end up buying stocks at the market high, soon finding yourself in the red for a while. Imagine investing 100% of your cash in July 2008, right before Lehman Brothers declared bankruptcy! That would have derailed your retirement plan completely.

What if I buy when the market is high?

Seeing your stocks down 20%, 30%, 40% doesn’t feel great, I know. However, if you’re a dividend growth investor like me, you invest in dividend-growing companies with solid fundamentals and lots of potential for years to come. You focus on total return and plan on holding those stocks to enjoy the growing dividends.

With a long investment horizon, buying great stocks at a peak in the market, while not the dream scenario, might not be the disaster it would be for speculative investors eyeing quick capital gains. Eventually, the market goes back up. It’ll just take longer to see stock appreciation in your portfolio.

I’ll wait for…

Unsure, you wait a bit to see what happens with the market. After that bit, you decide to wait for inflation to go down before investing. But then, the market climbs. OK, you’ll just wait for it to go down; it does, a bit, do you buy? No, because maybe it’ll drop even further. A pattern develops; finding excuses to delay your investment.

Buying at Intervals

An alternative to this paralysis is to spread the purchases at intervals over a period, six to nine months, for example, to get some protection.

If the market starts crashing tomorrow or next month, the downward spiral usually ends in six months. The market does not recover the lost ground after six months but stabilizes; it stops deteriorating before beginning its recovery.

If you invested chunks of your lump sum regularly along the way, you caught the peak and the valley and benefited from the decline to lower your average cost per share. You’re in the red, but less than if you had bought it all at the peak, and you’ll be back in black sooner.

In contrast, if the market was starting to climb at the start of the period, you invested starting at lower prices that increased over the period, averaging out to a cost below market price at the end of the period.

Make your Plan and Buy!

Let’s say you decide to buy Fortis, Granite (a REIT) for income and Alimentation Couche-Tard and Home Depot for growth.

Choose your buying period; six to nine months, less or more if you prefer. Write down the dates when you’ll buy stock. Using a six-month period for example:

• Now: Buy 1/3 of the total investment you plan for each company. Check which of the companies will soon announce their quarterly results; wait until you’ve reviewed them before buying, to see that nothing drastic happened recently.
• +Three months: Review the latest quarterly results to ensure everything’s on track, then buy another 1/3 of each company.
• +Three months: rinse and repeat with the last 1/3.

Investing a lump sum with several planned purchases at intervals over several months mitigates the risk of buying at a market high and being in the red for a while. It’s the remedy to the paralysis caused by emotions. It lets you act decisively and gets your money working for you.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.