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Request InformationFor most veterans holding $250,000 in cash, a lump sum wins more often than dollar-cost averaging, yet First Command Financial Services suggests a short schedule when a 20% early drop would make you sell. Quick test: multiply the cash by 20%. If seeing that loss in the first month ($50,000 on $250,000) would push you back to cash, invest over 6 to 12 months on automatic purchases you set up in advance.
Spreading purchases over time doesn't lower risk the way it sounds. It softens a bad first month and costs you in a good one, and stretching it to 36 months mostly leaves money idle in cash.
This walkthrough, written by First Command Financial Services for service members and veterans with a military pension, follows the calendar from the day the sale closes to next April's tax return. Each section answers the question the one before it raises.
By Elena Rodriguez, CFA — Portfolio Manager | Reviewed by Marcus Thompson, CFAA $50,000 paper loss isn't what hurts a household. Selling at $200,000 and missing the recovery is.
Marcus Ellery, Senior Financial Planner at First Command Financial Services
Interest on waiting cash is ordinary income. In a year you plan Roth conversions, ask what $4,000 of it does to your bracket before you pick a schedule length.
Priya Nandakumar, CPA, Tax Director at First Command Financial Services
Start before closing day. First, split off the money you'll spend during a 9-month break, about $50,000 in the example below, into its own savings account that never gets invested. Nothing on this page applies to that money. Second, park the other $250,000 in a money market fund or Treasury bills the day the sale closes, so it earns interest while you decide. Third, run the 20% quick test with your spouse before buying anything. Multiply the cash by 20%, and ask whether that number would push you back to cash.
A 20% drop in the first month costs a lump sum investor $50,000 on $250,000, while a 10-month schedule of $25,000 purchases loses $5,000 in the same month. The price of that protection shows up if stocks rise: a 10% gain pays the lump sum $25,000 and the schedule only $2,500.
Reena is a hypothetical person, 49, retiring as an Air Force lieutenant colonel after 22 years. Her husband Bao, 51, is a civilian ICU nurse, and she plans a 9-month break before her next job. After setting $50,000 aside for the break, she holds $250,000 of home-sale cash. Say stocks fall 20% the month after she buys. As a lump sum, $250,000 × 0.80 = $200,000, a $50,000 paper loss. On a schedule of $25,000 each month for 10 months, only the first $25,000 is exposed: $25,000 × 0.80 = $20,000, a $5,000 loss. The other $225,000 is still cash, and it buys at the lower price.
Now flip it. Stocks rise 10% after month 1 and then hold flat. The lump sum gains $250,000 × 0.10 = $25,000. The schedule gains $25,000 × 0.10 = $2,500. Reena gives up $22,500. Her question is which of those numbers would make her sell. Neither path is safe: stock prices can drop, and Reena could end up with fewer dollars than she started with either way.
To try it with your own number, first multiply your cash by 0.20. That is the paper loss if all of it goes in at once and the first month goes badly. Next, split the cash into equal monthly slices, one per month on the schedule, and multiply one slice by 0.20. That is the schedule's loss in the same month. Last, multiply the cash by 0.10, roughly what waiting can cost if stocks rise instead. Put the 3 numbers side by side and ask which one would make you sell.
In most couples, the spouse who checks the balance is the one who brings it up. For Reena and Bao, it's Bao. He wants to know what happens if $50,000 disappears while Reena has no paycheck. Fair question. Have each person write down, separately, the dollar loss that would make them want out, then compare the two numbers. The lower one sets the pace.
Before First Command Financial Services sets up the first purchase, it writes into the written plan what the household does after a 20% drop: keep buying on schedule and make no fund changes for 30 days. The regret test is about the sale that follows a drop, not the drop itself.
| Measure | Lump sum | 10-month schedule |
|---|---|---|
| Exposed to stocks in month 1 | $250,000 | $25,000 |
| Loss if stocks fall 20% | $50,000 | $5,000 |
| Gain if stocks rise 10% | $25,000 | $2,500 |
| Cash still waiting after month 1 | $0 | $225,000 |
| Hardest moment | Month 1 drop | Skipping purchases |
| Fits someone who | Can sit through a $50,000 dip | Would sell at a $50,000 dip |
Stretching $250,000 over 36 months comes from reading 'dollar-cost averaging lowers risk' as 'longer is safer.' It leaves about $125,000 uninvested on average. Assuming stocks return 6% a year and cash 4%, for illustration, the 2-point gap costs about $2,500 each year, or $7,500 over 3 years, and the stock exposure at the end is the same. Keep the schedule to 12 months at most.
Other slips are easy to make. Pausing purchases after a drop means the $225,000 that would have bought 20% lower gets bought later at higher prices. Putting the $50,000 gap fund in stocks turns a 20% slump into a $10,000 loss, taken just when Reena needs the cash. Checking the balance daily makes an emotional sale more likely. Set all 10 purchases to run on a fixed date, then look at the account once a month.
Then there's what no schedule can handle. Markets can fall in month 2 and keep falling, and a 10-month schedule gives no protection against a decline that lasts longer than 10 months. A health change for either spouse can call for cash, which is why the $50,000 stays liquid. Tax rules on capital gains or the home-sale exclusion can change. During the gap year, skip anything Reena can't undo, such as an annuity she can't surrender without a charge.
Roughly $4,000 of interest, for illustration. About $125,000 of average cash earning 4% a year for 10 months comes to about $4,000, and the IRS taxes it as ordinary income, the same as wages, on next April's return.
That interest lands in the same low-income year Reena may use for Roth conversions, and it takes up bracket room the conversion could have used. Treasury interest is exempt from state income tax; money market interest usually isn't. Some states tax retirement income, so check your state's rules.
A stock index fund pays dividends instead, about $3,750 a year at 1.5% of $250,000, for illustration. Those are mostly qualified dividends, taxed at long-term capital gains rates. Inside the TSP or an IRA none of this applies, because buying and selling there creates no immediate tax.
The home sale has its own paperwork. The IRS excludes up to $500,000 of gain for a married couple filing jointly who owned and lived in the house 2 of the last 5 years, and service members on qualified official extended duty can suspend the 5-year window for up to 10 years. A Form 1099-S may still arrive, along with 1099-INT and 1099-DIV, in late January or February.
Which dates matter, and what do you do on each? The calendar below runs from closing day to the end of the schedule.
Four questions to put to your CPA, your advisor and the brokerage:
| When | Deadline or event | What to do |
|---|---|---|
| Closing day | Sale proceeds land | Park $250,000, keep $50,000 apart |
| Month 1 | First $25,000 purchase | Set all 10 purchases automatic |
| Months 2–10 | $25,000 each month | Keep buying after any drop |
| Late Jan–Feb | 1099-INT, 1099-DIV, 1099-S arrive | Send all 3 to the CPA |
| By April 15 | Tax return due | Report about $4,000 interest |
| Month 12 | Schedule finished | Review allocation, rebalance once |
Each of you writes down, separately, the dollar loss you could sit through without selling. If either number is below the 20% loss on the full amount, which is $50,000 on $250,000, choose a schedule of 6 to 12 months. The more cautious number sets the pace, because the spouse who would sell decides how it ends.
Not in stocks. A sweep or money market line is cash earning interest, so it doesn't rise or fall with the stock market. Check that the line is not labeled as a stock or bond fund. Depending on how the brokerage reports it, the interest appears on a 1099-INT or 1099-DIV.
You can do either, since a brokerage lets you change automatic purchases at any time. Stopping after a drop is the costly move, because the remaining cash then buys later at higher prices. If you switch to a lump sum midway, decide it in the written plan first, not in the middle of a bad month.
The right time is before the proceeds are invested, ideally the week the sale closes. Bring the closing statement, the brokerage statement showing where the cash sits, the latest TSP statement and the 2 dollar-loss numbers each spouse wrote down. Households with $500K or more in investable assets can request a first conversation with First Command Financial Services, held by video or telephone from wherever you live, so the schedule and the written plan are settled before a single share is bought.
This article is general financial information only, not investment advice tailored to your circumstances. Investing involves risk, including loss of principal. Before making any financial decision, consult a qualified professional about your specific situation.