Lump sum investment timing

bowlhead99

ChesterDog wrote: »

As a scientist, I find that article irritating.

Me too: yes I'm sure that, "Indeed, it is difficult to find any advocate of lump-sum investing"- when the people you are asking for opinions are those who run investment management funds or platforms.

Those platforms would very much like to get "new investors who are often put off by market news and a "bewildering" range of investment options" to commit to their products and feed them their surplus cash as it becomes available each month for the next one to five to to twenty years; with its touted risk-reducing qualities and low immediate outlay, it is a much easier sell than trying to get someone to give you all the life savings they have available right now. Call me a cynic

So, pound cost averaging is almost always shown as attractive by such firms and very few show the flipside which is that if the price over the next few quarters is say105, 110, 105, 98, you will end up with more units if you just buy now at 100 - rather than wait in cash for those later quarters and buy more expensively while missing the income and growth.

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.

I agree anything that already looks a good price, buy it now. If there is other stuff you want that's not at a good price, and this doesn't deter you from getting involved with it, I suppose you could dripfeed and on the monthly coin toss, some of the units will hopefully be bought at a better price than today, rather than even worse price.

Others would say just don't buy things that aren't already at a good price! But that's challenging if you're trying to build a balanced portfolio across all sectors, rather than simply pick your favoured sectors now and hold the rest of your liquid assets back for better opportunities a la Jegersmart. Different methods work better for different people, with psychology and experience coming into it.

Ultimately you should probably not be buying anything that you don't expect to go up over time or produce income over time. So, if you already have the money, and you expect the share or fund to go up or deliver income better than cash over the next one or three or five years, it seems counter-intuitive to choose to buy it the average price available the next few years (and only buy the last of it in the last month of those one or three or five years, missing 90%+ of the income or growth).

Of course you would probably want to do the slow drip method if you foresaw a crash or were buying something really very volatile - but there's an argument that if you foresaw a crash you should stay in cash instead, and if you try to remove the risk from investing a certain sector you also limit the available upside rewards.

As Dunstonh suggests, whether you buy at the average price of Jan2014 or of 2014 or of 2014-2017, you will hopefully be doing very well by 2040. But clearly if you can buy that asset for half price by a) investing now rather than later, or b) by investing later rather than now, you will be doing twice as well on that specific asset by 2040.

Absent a crystal ball or reliable tea leaves it's difficult to know which one will work. If you don't feel you have a lot of experience or insight into your market of choice, toss a coin and take comfort in the fact that either way, you'll hopefully have accumulated a whole bunch of other assets by 2040 - and already have full ISAs and reasonable pension provision.