When do you buy funds?

remorseless

Since you can’t set a buying price for funds like in FX, do you wait till the price is a bit down before placing a deal?

ChopperST

I buy monthly as I'm investing for the long term irrespective of price I just buy according to my asset allocation and rebalance quarterly ideally by buying more of under performing funds. If I have any spare cash through the year I will buy again to bring my portfolio within its pre-determined percentages.

Whats your investment timescale?

Linton

If you have determined that a fund meets your needs then buy when you have sufficient spare money. Waiting for a dip is not going to help on average:

- the price when the dip happens may well be higher than the price now.
- how do you tell the difference between a dip and the start of a major fall?
- whilst you are out of the market you are failing to get any dividends or interest.

remorseless

That's what I am trying to understand!!!!! I have just started now with funds... I am more used of trading FX but seems worlds apart!

Linton wrote: »

- how do you tell the difference between a dip and the start of a major fall?

how do you tell if it's time to sell the fund or make a good switcheroo to a better one? Seems with funds that the assumption is that they will always grow over time!!!!

Linton

remorseless wrote: »

That's what I am trying to understand!!!!! I have just started now with funds... I am more used of trading FX but seems worlds apart!



how do you tell if it's time to sell the fund or make a good switcheroo to a better one? Seems with funds that the assumption is that they will always grow over time!!!!

Dont try and time. Focus on what the fund invests in and how that matches with your wider portfolio. Yes, the assumption with fund investing is that over a sufficiently long time any fund one invests in will increase in value. There will be differences between funds in what the sufficiently long time is, what the return will be, and how much volatility in the meantime. Also you need to ensure good diversification, so what the fund invests in is a vital concern. Only switch when the new fund is better in those terms than the old one. Its very different to trading shares or FX.

Think of it another way - a fund may be investing in 100 companies. Does "trading" this really make sense? Would you think of selling or buying 100 different positions at one time in a single monster trade? In any case the manager may be trading to some extent every day. Does it make sense for you to provide a second level of trading?

bowlhead99

remorseless wrote: »

That's what I am trying to understand!!!!! I have just started now with funds... I am more used of trading FX but seems worlds apart!

It is worlds apart. If you're trading an FX pair, then you are basically exposed to investment risk on one asset (or liability). You can see what is happening and make guesstimates what will happen next and place an order that says if the market moves a long way, you want out (or in).

Whereas with a fund you don't just have one asset or liability. You have a whole load of underlying assets, maybe a share of ownership of 50 companies or 2000 companies. Presuming we're talking about an OEIC or unit trust: once per day, they get the closing value of all those companies at the last published price and give you an indication of what the whole lot is worth.

However, if you want to buy in, you are going to need to give them notice to give them money and they are going to need to deploy it into all those underlying assets by buying more of them (or selling, if you're reedeming your shares). Although they told you today what everything was worth last night, if you place an order to buy tomorrow you are going to get given the more up to date value that is available when your order's accepted and they create the new shares for you. They don't know right now what that value will be, and they won't go and create or redeem some units without a firm commitment from you, which is why you can't place advance orders for 'if the price is over x, buy' or 'if the price is under y, sell'. It is not like watching the price of one asset in real time and taking action if it goes over a trigger value for one second.

The whole point of using funds is they are collective investment vehicles where you and a bunch of other people spread the risk and the cost of buying into a broad collection of assets. The manager of the fund, not you, decides when to buy and sell the holdings which create the returns. If you like, you can decide you no longer want to follow that manager's strategy to invest in European Smaller Companies and from tomorrow you want to sell out and put half the money into Asian Leaders and half the money into Global Dividend Payers.

Your fund platform can arrange those switches for you but as you are investing in very broad baskets of stocks with individual strategies with the overall goal of spreading risk, it is not time critical that you get all the 2000 underlying holdings sold right this second. So, things move at a more glacial pace.

how do you tell if it's time to sell the fund or make a good switcheroo to a better one? Seems with funds that the assumption is that they will always grow over time!!!!

The way you decide the time to buy or sell depends on what drove you to use that particular fund in the first place. A hunch? Then maybe just sell it when the wind changes and the next shiny fund takes your fancy. The recognition that you should have some exposure to Chinese tech manufacturing companies because in 30 years time you will be buying a lot of spare parts for your hover-zimmer-frame? Maybe hold the fund until retirement.

Of course, funds don't always grow over time. The trick is to not mind when they fall, or have a good balance of assets so that if some fall, others rise or don't fall so much - so you can rebalance your holdings and buy more of the cheap ones. Another option is to be constantly wondering whether the fund will rise or fall in the next week and buy or sell accordingly. But because you have such a broad spectrum of assets, the individual ups and downs don't matter so much and most of your returns just come from general growth over time. Instead of perhaps doubling one day and halving the next and trying to time all that perfectly.

Of course, if you prefer to buy something more real-time there are some types of funds traded during market hours on the stock exhange - exchange traded funds or investment trusts. The former tend to follow indexes that you can track minute by minute just like you can follow an FX pair on a trading desk. The latter are more actively managed funds that announce their net asset value once a day or once a month but allow you to buy and sell directly to other people on the market in the meantime - so that you might pay more or less than the underlying assets are actually worth, depending on supply and demand. Both could be accessed with stop or limit orders using a broker.

remorseless

slowly it will sink in... so there's no hard fast rule about when to buy, well beside having the spare cash to buy!

bowlhead99

Exactly.

FX speculation is a zero-sum game, because whoever sells dollars too cheaply is going to lose the same relative value as his counterparty gains value by buying them off him cheaply. An FX rate, or a bar of gold, or a barrel of oil - don't pay any kind of return or have natural growth. So the only way to make money out of them is buy and sell at whatever time you hope is the best and then hope someone buys them off you at a better price.

Whereas with funds - they are typically invested in company equities or bonds. Company equities become more valuable over time with the local or national or international economy, and will pay out dividends when cash is spare. Company bonds do not naturally get more valuable (though their relative value can rise or fall) but they pay a fixed rate of return to thank you for providing them with finance. So by simply holding funds of shares or bonds you can make money, without trading them to try and jump on and off the gravy train on their fastest points on a chart.

With FX you can't do anything but trade, and hope you're lucky, because simply holding a position costs money and/or a spread if the price does not change. It is a bit like going to the casino. The bettors on red and black win and lose to each other and the house pays out if you bet red and win and nobody else bets black. The house makes money overall by having the odds in its favour and taking a cut, while all the bettors put together do a bit worse than breakeven even if some day Player 1 wins and others Player 2.

But with equity funds, it is like buying an ownership share in the casino. Some days the house is up, some down, sometimes it's down for many weeks in a row - but if you have time to wait it is very lucrative owning a piece of the house rather than being the gambler.

remorseless

bowlhead99 wrote: »

but if you have time to wait it is very lucrative owning a piece of the house rather than being the gambler.

that's something else I can't (yet) get my head around... how long do you keep these funds?
In FX holding a position few days is already too long!

Say I have invested £100 on a fund and it's performing well, etc - should I keep it for 30 years if I don't need the money?

Gadfium

Its not about timing the market, its about time IN the market...

remorseless wrote: »

Say I have invested £100 on a fund and it's performing well, etc - should I keep it for 30 years if I don't need the money?

Sell it when you want to crystallise the profit. Any gains are real until you turn them back to ££££s.
Historical evidence would show that, over the long term, the market beats cash. So the longer you hold it (using a VERY broad brush) the more chance it has to grow and reinvest dividends. However, you will get to a certain point, maybe when you get nearer to needing the money, that you will become less accepting of the risk associated with the fund. So you would gradually start to turn the fund into cash/lower risk vehicles as you get nearer to needing the money.

jimjames

remorseless wrote: »

Say I have invested £100 on a fund and it's performing well, etc - should I keep it for 30 years if I don't need the money?

Yes.

Unlike FX one of the big impacts from funds is long term compounding of returns. If you sell what would you do with the money?