Lump sum investment timing

EdGasket

Regular saving beats lump sum investment:

http://www.iii.co.uk/articles/89552/regular-savers-can-beat-lump-sum-investors

JohnRo

It's impossible to say ahead of time which will prove the better option isn't it, why do people even bother trying?

As said up thread it's mostly about psychology. I personally favour a lump sum because there's dividend income or accumulation to consider and if you've made the decision to invest over a suitable period of time and you're clear about what and why and have the money available then just get on with it.

Any capital growth is given full benefit while any falls are propped up somewhat by dividends. I'd have thought the more important aspects are suitable diversification, understanding of risk and investment costs.

dunstonh

Thanks for the replies. Most seem to favour a single payment. The dilemma with not keeping some cash back would be seeing the markets drop and not having a good amount of cash to take advantage.

That is where rebalancing your portfolio comes into play.

blueton

dunstonh wrote: »

That is where rebalancing your portfolio comes into play.

I would agree in theory, but my allocation is intentionally quite bold and as nearly all my allocation is in UK All Share, UK Small Cap, and Developed World ex-UK, all these are likely to all rise and fall at the same time, so I doubt I would find a situation where I can sell gains to increase holdings in losers. I suppose in this case I can still sell the best winners to buy more of the lesser gainers, or sell the smallest loss makers to increase holdings in the largest loss makers. I assume this is what you are proposing?

Freecall

Well you could look at it like this :

Firstly, we know that historically (and statistically actually) you would expect to be better off in the long term with a single investment.

Secondly, pound cost averaging is a way of reducing the volatility of initial investments which it does by averaging the purchase price and allowing the overall purchase price to move towards the mean.

Clearly, the benefit of the second point comes at the cost of the first.

Theoretically you would therefore achieve the greatest benefit from using a single investment into a portfolio which has its overall risk profile reduced slightly from your target but then corrected by the volatility risk of your initial investment.

'How do you do that then?' I hear you ask.

Well unless you are investing millions you probably don’t. You would also have to know the term of your investment in advance.

Ultimately it all rather gets swamped by Glen Clark’s psychology argument and your personal approach to such things.

It does help to better understand how you are investing however.

Food for thought?

bigadaj

EdGasket wrote: »

Regular saving beats lump sum investment:

http://www.iii.co.uk/articles/89552/regular-savers-can-beat-lump-sum-investors

Not always, it depends on the shape of the graph. A straight line graph going up will obviously mean that an early lump sum will perform far better than regular saving.

bigadaj

blueton wrote: »

I would agree in theory, but my allocation is intentionally quite bold and as nearly all my allocation is in UK All Share, UK Small Cap, and Developed World ex-UK, all these are likely to all rise and fall at the same time, so I doubt I would find a situation where I can sell gains to increase holdings in losers. I suppose in this case I can still sell the best winners to buy more of the lesser gainers, or sell the smallest loss makers to increase holdings in the largest loss makers. I assume this is what you are proposing?

I'd check the graphs for those investments if I were you, it's a huge assumption to say that they'll move together. Over the last year or so the general uk market has been pretty flat whilst smaller companies have really outperformed. I would assume a developed world ex uk would be heavy in us shares, which would again have performed relatively well compared to the uk all share.

pip895

I started investing via a lump sum at the beginning of August 2011 - It was not a great start!! However two and a bit years on I am 36% up - go for it - if you wait you may have difficulty getting in at all.

kidmugsy

blueton wrote: »

this will be invested outside any tax wrapper.

The full amount can be invested as I have an income.

My pension and ISA investments are more cautious

Any thoughts on timing and a drip feed strategy?

In your shoes I might reverse your tactics and hold your higher risk assets in tax shelters (so that they are exempt from CGT), and any Fixed Interest so that it's free of income tax; outside a tax shelter I might hold an Index-Linked Gilt with a low running yield. Even outside the shelter it's free of CGT, and the running yield being low means that you'll have little tax to pay on the income anyway. In other words, nearly all its return comes not as interest but as inflation uplift - and that's not taxed.

As for dripping: I don't have a crystal ball so I might just settle for doing it the cheapest way, which would presumably be to deal once rather than multiple times. Or perhaps deal twice, once now and once after the Budget in (I assume) March. On costs I suppose you could compare different platforms, and even the govt's Debt Management Office.

ChesterDog

EdGasket wrote: »

Regular saving beats lump sum investment:

http://www.iii.co.uk/articles/89552/regular-savers-can-beat-lump-sum-investors

As a scientist, I find that article irritating.

First, the headline seems to make a generalised statement, when in fact numerous caveats apply.

Second, their own selected example compares drip-feeding through the tax year with depositing a lump sump at the end of it. How about depositing the lump sum at the beginning?

My opinion would be lump sum for things that look a good price, not too volatile and good for income, and drip feed for more risky stuff to get the pound cost averaging effect.