Life After Full-time Work Blog

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# 126 What Should You Do With Sudden Extra Cash?

Three approaches to this investment question


A reader from the UK sent me an email recently with the specific issue captured in the title of this blog post. Let me show you extracts from his email and my response.

I can’t resist starting with an irrelevant extract, because it means so much to me! He says: “My early years of retirement have been guided by your book, blogs and podcasts and your advice has been great comfort during my transition into Life Two and essential in terms of my financial planning. As an example my 5 years of Safety Oriented assets allowed me to sleep soundly during the Q1 2020 sell off!” (Me too!)

He adds: “I would value your thoughts on a quandary. I’m sure many others have the same quandary and so it could be a useful blog topic. The price you buy a Growth Oriented asset will dictate the return on that asset for years after … [He cites some stats to reflect this truth, with the unstated but implicit thought that equity markets seem very high right now. He goes on to explain his portfolio, continuing …] and so I have a large amount of cash which I will be dripping into my index tracker portfolio over the next 6 months. I have decided to go for the pound cost averaging approach because I have no idea what is going to happen to the prices of Growth Oriented assets (and even the experienced commentators don’t seem to have a clue either).”

He concludes: “I’m not looking for financial advice but I would really value your thoughts about how you would deal with this quandary.”

It took me a while to think about it and organize my thoughts. Here’s how I replied …


I can think of three ways to approach this: as a stand-alone question, as a decumulation question, and as a “doesn’t affect me financially” question. As you say, this isn’t advice because I don’t know your circumstances or your goals; instead, this gives you three possible contexts in which you can reach a solution that suits you.

(1) Stand-alone: This is the way you’ve posed the issue – suddenly you find a large amount of cash, so what should you do with it? There are two extreme approaches feasible: invest it all in your growth-seeking fund immediately, or keep it all in cash. Depending on how the growth fund evolves, one makes you a winner, the other causes huge regret. But you can’t tell which approach wins, in advance. Wisely, you know it’s useless to look for a crystal ball, which would of course give you the market timing answer that guarantees a win. So your own suggestion is a middle-of-the-road approach, to invest it gradually. (Whether over 6 months or some other period, it’s whatever you’re comfortable with.)

This is actually very sensible. You’ll neither win totally nor lose totally. You’ll be somewhere in between. What you’re actually doing is changing the focus from finance to regret. Rather than maximizing the financial outcome, you’re reducing your potential regret, because there’s now no chance that you’ll be totally wrong.

In fact this is a well-trodden path, one that is frequently taken even when very large sums of money are at stake.

For example, pension funds often have large amounts of assets invested in a currency that’s different from the currency in which their liabilities are expressed. Think of a UK fund with sterling-based liabilities and global growth assets. Should the trustees hedge the currency mismatch or not? A simple “yes or no” approach has the same characteristics as your problem does: the trustees will be either totally right or totally wrong. A frequent solution is to hedge half the currency exposure; then the trustees will not be totally right or wrong; they’ll be half right and half wrong, hence minimizing their potential regret, because any strategy other than a 50% hedge has the potential to leave them more than 50% wrong.

This is also what I did when I moved from the US to Canada (since all my learning comes from my pension fund experience). My personal spending now required Canadian dollars, so I hedged half the currency exposure from my global equity index fund back to Canadian dollars. Instead of betting on “all or nothing,” I minimized the extent to which my currency outcome could be wrong.

(2) Decumulation: This broadens the context to thinking about the cash as a part of your total decumulation pot.

It often helps to change the framework in which you view the problem you’re confronting.

Suppose for example (obviously I’m making these numbers up) your allocation is supposed to be 75% growth and 25% safety, and that’s in fact where you were before the cash injection. And your sudden influx of cash changes your actual allocation to (let’s say) 68% growth and 32% safety. Would you be mentally pushed to rebalancing to 75/25?

Now let’s change the framework. Suppose you’re actually at 75/25 today, after the cash injection (which, remember, is where you ought to be, according to the protocol you’re following). Would you want to depart from the protocol and move to 68/32? If so, why – are you indulging in market timing?

In other words, I’m suggesting that you look at two different questions: (a) if you’re at 68/32 would you prefer to be at 75/25, and (b) if you’re at 75/25 would you want to move to 68/32?

I don’t know what your answers would be, to the questions I’ve just posed. But whatever they are, looking at the same problem in two different ways should help you reach the solution you’re most comfortable with. (Or, let’s be honest, perhaps least uncomfortable with!)

(3) Doesn’t affect me financially: This would be the situation where you find yourself in the Bequest Zone (see  – I’m delighted to say I identified this blog post very quickly, thanks to my new index!). In other words, your pot is big enough for you to be able to lock in your desired lifestyle for as long as you and your partner live. And therefore this new influx of cash is surplus to your own requirements. It’s either play money, if you want to think of it that way, or it’ll only affect those whom you leave assets to, rather than yourself.

That’s an entirely different context from the other two I’ve identified.

If it’s play money, do whatever makes you happiest with it, because having fun is your only goal. If it’s bequest money, consider how your beneficiaries might prefer you to invest it. You might even be able to talk to them in advance, as we’ve been able to do with our children.

As I said before, I don’t know your situation or your goals. And I don’t want to and don’t need to, because my own goal here is to help you think through your situation and find your own solution. Sometimes it helps to frame a question in different ways. I hope that’s what I’ve helped you to do here.


PS: It appears that the thought processes I suggest here helped my reader, particularly adding the regret dimension and the Bequest Zone context. And he gives me a high performance rating on my goal of helping others!

PPS: I had one further thought after all of this, and it was that I might have misunderstood the basic problem(!), as no specific details were provided about the source of the high cash situation. Perhaps it was a total cash-out of the original (index tracker) growth account, along the way (not yet completed) to investing in a different (presumably lower-priced index tracker) growth account. If so, the issue would then be: should you invest fully, going back to the desired 75% growth position, or go in gradually in case the current market level is a bubble? In which case I’d suggest re-framing the situation as follows. Assuming both funds are index trackers, hence with essentially the same gross-of-fees performance, suppose the first fund simply cut its fees to the level of the second fund – would that prompt you to reassess your growth exposure fundamentally, or would you just leave the money in it?



See which of these frameworks makes you feel most comfortable. Perhaps you think of it as a stand-alone asset. Perhaps you think of it as part of your decumulation pot. Perhaps you’re not affect by the investment income. One of those frameworks should incline you towards a solution that makes the most sense to you.


I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

4 Responses to “# 126 What Should You Do With Sudden Extra Cash?”

  1. David Hartley says:

    Hi Don,
    There is another angle to this. If one were to have taken money out of shares prior to a substantial downturn, such as that seen in response to COVID-19, the question becomes one of deciding if and when to get back in. I have in the past seen many people patting themselves on the back for having sold before a market fall only to find the market recover to a level that was higher than that at which they sold.
    However if you are able to maintain a focus on your objectives the question becomes a little simpler. For example if you expect to be drawing on capital over time then periodic high prices give an opportunity to sell into strength; to top up the safe pool of assets. Furthermore, someone in such a situation could contemplate selling (covered) call options to generate additional income in the short term and to systematically sell shares after a rise in price.

    • Don Ezra says:

      Thanks, David. How true! I too know of folks who sold high and couldn’t bring themselves to reinvest because they kept feeling they should wait longer. Successful market timing requires two good decisions, both in and out, not just one. Going into the market seems to be the tougher one, psychologically. Harvesting in rising markets, as you point out, is a good strategy, to protect or even top up the safe pool of assets. As for selling covered calls — gosh, that’s for experts/professionals who really understand markets — for my readers, I don’t get into options.

  2. Mike Clark says:

    Buy more good claret.

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