Lump sum investing and asset allocation

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Hi all,

I am new to posting here though I have been lurking for some time now. I am 25 years old and looking to invest into several index tracker funds. I am going for a 80 stocks: 20 bonds portfolio. I have a (what I feel to be) stupid question that I can't figure out. My question is as follows: I am taking the lump sum approach to investing and would like to invest ~£5K initially as one whole lump sum then drip feed for a few months (while I save up for another lump sum) then invest another lump sum, then drip feed for a few months... and so on and so forth. In terms of asset allocation (my 80:20) would this not mean that I would have to keep rebalancing or readjusting my portfolio to make sure it stays within my 80:20 allocation?

I can't figure this out.

Thanks in advance for any help. Much appreciated.
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  • Linton
    Linton Posts: 17,238 Forumite
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    Whether it makes sense to put in a lump sum which you drip feed into the chosen funds is very much open to question. However if that is what you want to do you can drip feed into each of the the various funds sufficient to keep the equity/bond ratio at 80/20. You dont need to keep it accurate to a fraction of a %.
  • Gadfium
    Gadfium Posts: 763 Forumite
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    Well, you could make it easy for yourself and invest in one of the "auto-rebalancing" funds such as LifeStrategy. Then you can "fire and forget".

    Dripping vs lump sum? Here's one view:
    http://monevator.com/lump-sum-investing-versus-drip-feeding/

    Drip feeding will tend to average out lows and highs more quickly, I would have thought. But, assuming you are investing for many decades (as your age would suggest) then it will probably amount to next to no difference.
  • colsten
    colsten Posts: 17,597 Forumite
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    The need to rebalance might arise if the constituent elements of your portfolio move in different directions. There are many theories for when you should rebalance, I suggest you google for ideas if you plan to do it yourself.

    As an alternative, you could settle for something like the Vanguard LifeStrategy 80 which does rebalancing for you.
  • BLB53
    BLB53 Posts: 1,583 Forumite
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    The easiest solution would be to invest in the Vanguard LifeStrategy 80 index fund which is automatically rebalanced.
  • Superscrooge
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    MaisR wrote: »
    Hi all,

    I am new to posting here though I have been lurking for some time now. I am 25 years old and looking to invest into several index tracker funds. I am going for a 80 stocks: 20 bonds portfolio. I have a (what I feel to be) stupid question that I can't figure out. My question is as follows: I am taking the lump sum approach to investing and would like to invest ~£5K initially as one whole lump sum then drip feed for a few months (while I save up for another lump sum) then invest another lump sum, then drip feed for a few months... and so on and so forth. In terms of asset allocation (my 80:20) would this not mean that I would have to keep rebalancing or readjusting my portfolio to make sure it stays within my 80:20 allocation?

    I can't figure this out.

    Thanks in advance for any help. Much appreciated.

    I would suggest rebalancing once a year is sufficient, and I wouldn't bother if the ratios have only drifted by a few percent.

    When your investments are relatively small it is easy to rebalance when you have a lump sum to invest. If the ratio is drifting towards being high in equities you invest all, or a higher proportion, in bonds and if higher than desired in bonds you do the opposite.
  • redpete
    redpete Posts: 4,693 Forumite
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    I wouldn't bother 'saving up for the next lump sum' with a small amount drip-feeding in. Why not drip feed as and when you have spare cash - i.e. the money you would be saving up?
    loose does not rhyme with choose but lose does and is the word you meant to write.
  • MaisR
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    Thank you everyone for your responses. Much appreciated. So probably in my case I will make an initial lump sum investment then drip feed monthly thereafter.

    With regards to the Vanguard LifeStrategy 80% Equity what is the advantage of investing in this fund over investing in several index linked funds (apart from the re-balancing)?
  • Sam_J12
    Sam_J12 Posts: 253 Forumite
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    MaisR wrote: »
    Thank you everyone for your responses. Much appreciated. So probably in my case I will make an initial lump sum investment then drip feed monthly thereafter.

    With regards to the Vanguard LifeStrategy 80% Equity what is the advantage of investing in this fund over investing in several index linked funds (apart from the re-balancing)?

    There is very little advantage other than not having to think about things. If you care about fees, as most passive investors do, then you can invest cheaper by picking your own ETFs.
  • AlanP_2
    AlanP_2 Posts: 3,266 Forumite
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    Check how much your chosen platform charges for FUNDS and ETFs as many charge for Buying / Selling ETFs which can make monthly drip feeding expensive even though the headline charge may be lower than for the broadly equivalent fund.

    The advantage to Vanguard LS, L&G Multi-Asset, BlackRock Consensus and the like is as you say the rebalancing that they do for you and the "professional" Asset Allocation approach that they use.

    Fire & Forget investing to a certain extent, although they all work in different ways to manage their Asset Allocation.

    Vanguard seem to do a review every so often in terms of the %'age allocation to each underlying fund but stick (as near as damn it) to their advertised split between Equities & Bonds.

    L&G on the other hand have a more dynamic (active?) approach dependant on their view of markets.
  • MaisR
    MaisR Posts: 9 Forumite
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    Thank you for your responses. So if there is very little advantage to investing in Vanguard LifeStrategy 80% Equity other than the simplicity of it and the rebalancing and it is cheaper to pick your own funds then that's what I'll do.

    Yes I was also concerned about the charges of monthly drip feeding into various funds. I will look into that and keep it in mind seen as I will likely being doing a combination of both lump sum and drip feeding.

    Thank you for your help everybody!
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