Invest a lump sum - should I just jump in?

raymondred

I had a windfall and want to invest it. I read Tim Hale’s book Smarter Investing and want to put it into action. I am going for 75% in equities and 25% split between Commercial Property, Commodities, and Corporate Bonds.

One thing the book did not cover was how to start a diversified portfolio with a lump sum. Is it better to make the asset allocation decision and then put the full amount in, then rebalance as necessary in the future? Or would you drip feed each month for 6 months in the proportions for each asset class and be fully invested after 6 months?

Also it’s hard to put money into something when the graph line is falling! But I think one of the main points of Smarter Investing is to accept that some asset classes will perform better than others at different times so I should still buy the Commodities in my chosen allocation now even if the funds recent performance is declining. Same for bonds even if there is talk of a bonds bubble. I should just stick to my allocation and still buy commodities and bonds?

atush

It all depends on where you think the market is, and if you would be prone to hit the panic button if markets fall just after you invest that LS.

If this would be a worry for you (ie putting in 10K and it is worth only 8K after a few days) then deciding your allocation, then drip feeding money in over 6-12 months would make the best sense.

Read some of Flock of Sheep's posts?

bigfreddiel

you can prove anything with stats - but one report i read (can't remember where - trustnet, morningstar, ic?) said a lump sum investment performed betterthan drip feeding - over 1, 3, 5 years

in reality you should just do whatever you're happy with

for example would you have been happy missing the rally in equities over the last year had you been drip feeding?

how about a lump sum investment in july 2008 and the 30% fallthat followed a few months later?

good luck

grey_gym_sock

on average, you expect your investments to go up (that's why you chose them, right?) ... so the sooner you invest, the better.

but if you're going to watch nervously in case you buy and your investments start falling, then perhaps drip feed.

all-at-once is the logical approach, providing you're comfortable with it. but isn't necessary if you aren't.

MoneySaverLog

If you believe the markets are near the top drip feeding seems to be the better option with pound cost averaging. Else you could invest the lot when you believe the market is at a low point

Two problems with the latter approach.

1) You hold back thinking the market is on a high and about to crash and it continues to go north.

2) Then as a result of 1 you invest the lot just as the market crashes

raymondred

Thanks for the replies! Reading the comments I think if markets dropped straight after investing the lot, I would be concerned not just at the loss but more the missed buying chance at a better price. So I will put 35% in now, 25% next month, 25% the month after. If the market falls after my first investment then I know I am adding 50% on falls which means buying low(er), and if the market rises then I am already invested. I can keep 15% back in case of a real nose-dive once I am 85% invested to buy low. Thank you for helping me think it through!

Does anyone have a view on my questions about how to approach buying Commodities (10%) and Bonds (10%) as part of my portfolio? It's hard to click the online trade button and buy something on a loss making downtrend (the commodity funds)!

The bonds are a worry too (I was going to split betwen L&G Fixed Interest Trust I Acc and iShares Markit iBoxx GBP Corporate Bond ex-Financials (GBP) ISXF) but some are saying bond prices are a bubble. I thought bonds were a balance against equities falling in turbulent times, so if bonds are overpriced and I am buying them now, then what if both equities fall and the bonds bubble pops?

atush

Plenty of funds for Bonds about.

Commodities have some too but depends on what you mean. Lots of funds in metals/mining but fewer of you are talking agricutural so look at ETFs too.

raymondred

atush wrote: »

Plenty of funds for Bonds about.

Commodities have some too but depends on what you mean. Lots of funds in metals/mining but fewer of you are talking agricutural so look at ETFs too.

Are you saying my choices for bonds could be better (split betwen L&G Fixed Interest Trust I Acc and iShares Markit iBoxx GBP Corporate Bond ex-Financials GBP ISXF)?

For commodities I have chosen an ETF: Source LGIM Commodity Composite ETF (GBP) LGCF

My concern was not so much my choice of funds but whether I am right to jump in and buy 10% bonds and 10% commodities in my new portfolio now, even though bonds maybe in a bubble and commodities are on a down trend. It's hard to click that buy button seeing the down trend! Or is the most important thing to buy now anyway because it keeps the planned portfolio allocation plan?

grizzly1911

raymondred wrote: »

Are you saying my choices for bonds could be better (split betwen L&G Fixed Interest Trust I Acc and iShares Markit iBoxx GBP Corporate Bond ex-Financials GBP ISXF)?

For commodities I have chosen an ETF: Source LGIM Commodity Composite ETF (GBP) LGCF

My concern was not so much my choice of funds but whether I am right to jump in and buy 10% bonds and 10% commodities in my new portfolio now, even though bonds maybe in a bubble and commodities are on a down trend. It's hard to click that buy button seeing the down trend! Or is the most important thing to buy now anyway because it keeps the planned portfolio allocation plan?

The choice is down to you.

Everyone will have a different view.

If you are happy with you allocation then you have got to start dipping your toe in at some point.

Bonds are still part of balanced portfolio even though commentators are saying they are in a bubble.

Whilst commodities are also part of the balance I don't feel any more confident they will recover any time soon. I am not so sure where large scale upturn in demand is going to come from any time soon.

We don't know when the rug is going to get pulled and we also don't know what impact that will have on equities either, they could take a tumble too.

furrygiraffe

raymondred wrote: »

For commodities I have chosen an ETF: Source LGIM Commodity Composite ETF (GBP) LGCF

My concern was not so much my choice of funds but whether I am right to jump in and buy 10% bonds and 10% commodities in my new portfolio now, even though bonds maybe in a bubble and commodities are on a down trend. It's hard to click that buy button seeing the down trend! Or is the most important thing to buy now anyway because it keeps the planned portfolio allocation plan?

Im not familiar with that etf, but since you are planning to go long on commodities/futures you should check it attempts to mitigate contango

dunstonh

so I should still buy the Commodities in my chosen allocation now even if the funds recent performance is declining.

That suggests you are not ready to invest yet as you don't really understand it. Also, investing in a manner that is above your understanding is not a good idea either.

Reading the comments I think if markets dropped straight after investing the lot, I would be concerned not just at the loss but more the missed buying chance at a better price.

As you dont know the future you cant be worried about this. It is something that can happen and you either accept it or phase your investments knowing that statistically, phasing is likely to give a less return than going in one go.

My concern was not so much my choice of funds but whether I am right to jump in and buy 10% bonds and 10% commodities in my new portfolio now, even though bonds maybe in a bubble and commodities are on a down trend. It's hard to click that buy button seeing the down trend! Or is the most important thing to buy now anyway because it keeps the planned portfolio allocation plan?

Trying to time markets usually ends up with a lower return than being in the markets and rebalancing through ups and downs.

What strategy are you attempting to follow with your investments as it does appear that you are going in quite high risk and from your posts, I am not sure you are ready for that level of risk.