Lump sum vs 'drip feeding'

dreamonsu

I have had a bit of a windfall and have £2000 that I would like to put into an existing s + s ISA that I pay a regular £50 a month into (so I have paid £300 so far this tax year and will pay another £300 into this year). I don't know whether to put the whole amount in now or pay it into the highest instant access account I can find and 'drip feed' £250 a month. I have heard about the merits of 'drip feeding' but don't know enough to decide if that is what I should be doing. Could I ask for some opinions please?

Paul_Herring

Your ISA - is it cash or equities (for clarification; you appear to imply equity)?

What debts do you have? Imclude mortgage and credit cards.

What savings do you have?
Do you have the canonical 3-6 months wage/expenditure in easy access savings?
'Emergency' savings - do you have any?

You appear excited at the fact you have £2k to 'spend/use' - can you afford to risk it on the stock market?

dreamonsu

Hello Paul thank you for replying.
I do have a cash ISA but the ISA I am considering putting the money into is a stocks and shares (equity) ISA.
My husband and I are fortunate that we no longer have a mortgage, do not have any debts and have quite a healthy amount of savings.
The reason I sound a little excited is that this money really is out of the blue. My late mother's aunt (whose existence I had no idea of) left her a small legacy and since my mother passed away before her aunt this money has come to me.
So yes I can afford to risk it on the stock market, it is money I never expected to have.

Rollinghome

Although it's something that many people do, I've never understood the arguments for "drip-feeding". Unless the investor never gives such a thing a thought, what it amounts to is buying regardless of whether he judges the markets to be too high or at attractive levels. It goes without saying that no one is likely to get their timing consistently right but it seems a tad pessimistic to assume that using your judgement would be worse than relying on totally random chance. The difference between investors who do well and those who do badly, whether by luck or judgment, is timing.

Lokolo

Rollinghome wrote: »

Although it's something that many people do, I've never understood the arguments for "drip-feeding". Unless the investor never gives such a thing a thought, what it amounts to is buying regardless of whether he judges the markets to be too high or at attractive levels. It goes without saying that no one is likely to get their timing consistently right but it seems a tad pessimistic to assume that using your judgement would be worse than relying on totally random chance. The difference between investors who do well and those who do badly, whether by luck or judgment, is timing.

How about, can't afford one off?

For example, I have sufficient savings, I have an extra £100 a month to spend. I drip feed it into some funds.

Myrmidon_J

Rollinghome wrote:

The difference between investors who do well and those who do badly, whether by luck or judgment, is timing.

Numerous studies (e.g. Brinson, Hood and Beebower (1986), Ibbotson and Kaplan (2000)) have in fact shown that long-term portfolio performance is more driven by asset allocation than market timing.

natman

Rollinghome wrote: »

I assume that's from necessity rather than choice.

I agree with LOKOLO, and personally I also choose to save in a regular saver, and fix term bonds and drip feed into these accounts from instant access accounts.
In fact its quite a logical effective thing to do.

I have savings in longer term Bonds and in cash ISA's that are getting an ok return, and i dont really want to touch these savings.
I too want flexibility in some monies and i get paid monthly, so have a few instant access accounts and Regular savers and shorter term bonds that I drip feed into. I can t understand why you think this is a necessity - This is a definite choice for me, as i like flexibility, decent interest rates and drip feeding really gives you this.

In answer to the question of the original poster -
I would personally consider putting the whole amount in an account somewhere, you obvioulsy are ok with the stocks and shares ISA concept and for that reason I would consider that first.................
Or i would at least put half in the ISA and put half in something like the CITI bank instant access account at 3.30%. but thats just me.
I would also consider paying some off the mortgage, but as you say, your have no debts or mortgage - lucky guys!

I suppose theres a variety of accounts that will be helpful - depends on what you wanna do with the money -
you could always spend it - hee hee.

But for me -
Spend a bit
Tie some up a bit ( your isa sounds ok for this)
put some in instant access.
spend a bit more.

Good luck

Aegis

** Rollinghome's anti-IFA post was removed, so I've removed this response **

Milarky

Rollinghome wrote: »

Another little sales phrase some advisers are fond of is "It's not timing the market but time in the markets that counts". Which contradicts the fact that a FTSE portfolio bought 10 years ago would be worth less than one bought 5 years later.

Yes, which helps explain the emphasis on 'stock selection'.

As a general observation, 'cash' only 'borrows' from the future at a 'set rate' (i.e. you can take a 'punt' on a fixed rate for as little as 12 months or a variable rate a month at a time - either way you 'risk' interest rates beig better in other accounts during this 'term') whereas 'investments' attempt to ride the market which tries to make money out of future reutrns (e.g. "it's discounted in the price") The clearest 'signal' a market can return IS the price signal - and patently market 'professionals' are buying on dips and selling on the highs (or trying to!) all the time. So why should any virgin investor - literally saving out of their monthly income (and thus without a lump sum in the first place) - consider behaving any differently in their own self-interest?

Of course a few year down the line it's a different picture. Our virgin now has a modest lump sum in the market and each month's sub makes relatively little difference. Now we have to behave more like the big boys and consider moving our investment. If we really don't know what we are doing we might as well move 'into cash' and re-invest in what we have been - perhaps doubling our monthly subs? But [not] paying attention to price signals at any given stage seems a bit of a 'no-brainer', if you will.

turbobob

Myrmidon_J wrote: »

Numerous studies (e.g. Brinson, Hood and Beebower (1986), Ibbotson and Kaplan (2000)) have in fact shown that long-term portfolio performance is more driven by asset allocation than market timing.

Out of interest did any of those studies include any really bad periods i.e. secular bear markets. For example in the US 1929-1949 and 1968-82?

There was a study done on US equities comparing a defined market timing strategy with a buy and hold approach. The results of this (perhaps not surprisingly) is that in bull markets buy and hold outperforms. The timing strategy performs better in bear markets. Over the 70 year period studied the timing approach produced better returns. http://viking.som.yale.edu/will/newsclips/newsclip.html#Forbes,%20April%206,%201998

Rollinghome

Aegis wrote: »

** Rollinghome's anti-IFA post was removed, so I've removed this response **

Hmm. Yes, Moneysaving.com have removed my entire post without the courtesy of any explanation, presumably because as you say it was deemed to be "anti-IFA" which of course isn't allowed here.

There's a major problem with this site which appears to be firmly in the pockets of financial advisers and consequently censors any post it believes might be remotely critical of them. No doubt the Moneysaving.com censors will be back again.

Seems the greatest sin on Moneysaving.com is to agree with the Financial Services Authority who believe there is a problem for savers and investors in the way IFAs are currently remunerated and who have therefore demanded the end of current practices by 2012. For a more objective view users need to read less craven sites such as Moneyweek. See "Need unbiased advice? You'll be lucky." article www.moneyweek.com/personal-finance/need-unbiased-advice-youll-be-lucky.aspx Such an article would never appear on the Moneysavingexpert.com site.

There is rightly a great deal of unease about the way IFA's commission system currently operate both from the FSA and even among IFAs themselves. This is a comment by Whiteflag, who I understand is himself a qualified adviser.

whiteflag wrote: »

I personally can't wait for the term IFA to be confined to the history books. Its a title thats been hijacked by former tied reps and product salesman...

I understand Aegis that, although it isn't in your signature, you also work in investment sales for a bank, which may account for your position. It's a pity that this site lets it be used by those who have a vested interest without revealing that interest. Users deserve better. Perhaps more to the point, why do you regard what I said as being anti-IFA? Are you suggesting that all IFAs fail to warn clients when markets are unusually risky?

It wasn't as if the crash came entirely out of the blue. Following the fall of Northern Rock many objective commentators, not just in the more heavyweight publications but including Justin Urquhart on BBC Radio's Moneybox, were constantly warning against the high risk for equity investment at that point.

While they may have been given on the BBC there was no suggestions for caution or hints by "The Money Saving Expert". Quite the reverse.

Throughout the early part of 2008 when it had been clear for many months that it was, if nothing else, a very risky time to invest, Moneysavingexpert.com allowed those on this board with a vested interest to remorselessly encourage unsophisticated readers to invest in equities with countless posts, including with borrowed money. Furthermore, there was a policy on Moneysavingexpert.com of removing all posts criticising financial advisers who encouraged savers with very limited assets to invest without cautioning of the increased risks at that time.

Ignoring the warning signs already recognised by others is bit of a habit at Moneysavingexpert.com. Wasn't long before when Martin Lewis was both listing Icesave and Kaupthing as his Best Buys and actually allowed an Icesave public relations person to post denying all the many risk warnings about the bank. Days later the Icelandic banks went under. There had been no intervention or balancing post by Moneysaving.com concerning such posts from PR officers. The few on this board who did advise caution were drowned out by those who had followed his best buys advice, still convinced nothing was wrong. The bill for re-embursing those who followed the best buy advice was picked up by the taxpayer.

Understandable then that Jon Snow on Ch 4 news was gob-smacked when Martin Lewis, asked if he had acted irresponsibly, inaccurately claimed he had warned about the banks he had been recommending. In reality this forum was allowed to be flooded with posts insisting that nothing was amiss and that there was no additional risk to funds in a foreign bank without the same protection offered by UK institutions. No warnings were issued until afterwards.

Telling users of this site how to save on a half-price pizza or get double points at Tesco is fine and dandy but Moneysavingexpert could serve users far better by taking greater responsibility for the financial advice given here by vested interests. If there are conflicts of interest then investors need to take that into account but readers of this site won't be allowed to hear of them. Posts alluding to a possible conflict of interest will be removed as being anti-IFA.

When the FSA reforms arrive in 2012 banning the currently unacceptable IFA commission systems will the Moneysavingexpert still maintain there was never a problem? Will they still pretend to have been the champion of savers without ever having supported the FSA reforms? Time for the Moneysavingexpert to get on the right side.