Investing a Poor Performing Fund

dunstonh

No-one knows the future but you expect a major crash to happen at least once every 5 years. Sometimes more, often less but that should be your expectation. We had a major drop lost August (20% plus). So, you would be starting your contributions after a drop occurred a year ago. There have only been two years in the last 29 where there has been two consecutive years of decline on the FTSE100. So, playing the odds, another drop this way is unlikely. Recovery around the world is likely to be good the following year but as we get closer to year 5, you are looking more likely to have another major crash. Just as you are looking to end it (or were)

Now the above is all a hypothetical scenerio because you do not know what is going to happen. However, you do know that the economic cycle has expanded to 8-10 years in modern times. So, unless you invest for a whole economic cycle, you are not going to get the full range of performance. If you invest for a shorter term, you may get lucky and only be in the good years. Or you may be unlucky and only be in the bad years.

Short term regular contributions really suffered in the 90s as there was no major crash for over a decade. Great for single premium investing but it meant the regulars couldnt take advantage of any negative period and buy investments cheaper. Then when the crash came, it was greater than normal and took the value of the investments lower than most had been bought at. If you had time, you could ride it out and keep buying investments which were then cheaper. If you needed the money at that point you were lucky if you broke even.

The future is unknown but you can look to the past to see how things went wrong and why they went wrong. For as much as you cannot predict the future, the economic cycles of boom and bust continue to occur (history repeats. In different ways and on a different scale but knowing the pitfalls and the potentials before you start is key).

IronWolf

I would definitely pick the FTSE over Japan. Equities are on the whole quite cheap at the moment in my opinion, so I think you should be ok dripping into a FTSE100 or FTSE250 tracker.