Savings all in cash.... or diversify

economic

masonic wrote: »

The trouble is, investments tend to rise more often than they fall, so delaying investing money in the hope that your investment will be cheaper to buy in the future is not something that is likely to pay off on average.

This is the same concept as drip feeding. Holding cash, or drip feeding into an investment, can lower risk, but unless you can effectively time the market, you'll tend to be better off investing money as soon as it becomes available for investment.

wrong and very silly statement. invesments going up more often then fall is true in recent history but crtainly not if you look far enough back. to say this will continue is just a stupid thing to say. i would time the market and not put everything into an invesment in one go.

bigadaj

economic wrote: »

wrong and very silly statement. invesments going up more often then fall is true in recent history but crtainly not if you look far enough back. to say this will continue is just a stupid thing to say. i would time the market and not put everything into an invesment in one go.

So you don't follow the adage of time in the market, rather than timing the market.

I think you'll find many may think you are wrong and possibly being very silly. Many will refer to pound cost averaging as a benefit but this is convenient for many as it works from income as received rather than a lump sum, the consensus is that the more money in the earlier is the best option.

Unless you can of course give us your magic secret for timing the market.....

masonic

parksandrec wrote: »

moneysavingexpert . com / savings / best-cash-isa

Take the spaces out and maybe consider reading that

Done reading it. Couldn't find anything close to the 4-6% I'm getting in non-ISA accounts. Maybe I missed the high interest ISAs - could you give me an example?

economic wrote: »

wrong and very silly statement. invesments going up more often then fall is true in recent history but crtainly not if you look far enough back. to say this will continue is just a stupid thing to say. i would time the market and not put everything into an invesment in one go.

I was using a data set for equities and bonds from 1900-2008. I'll admit I've assumed property follows suit. You seem to be in agreement about investments rising more than they fall since 2008 and I'm reasonably confident the same was true prior to 1900.

So perhaps you could enlighten me as to exactly how you have come to the conclusion that on average investments fall more often than they rise, or maybe you would like to reconsider who is saying stupid things?

bigadaj

To be fair there's not a lot of data pre 1900 and not too many listed companies, though I think the Barclays equity gilt study actually starts in 1890.

The oldest investment trusts go back a few more decades.

However given the 130 odd year of relative outperformance of equities things still aren't guaranteed, there are periods up to a decade or longer where they have underperformed and the fact that we are now approaching a decade of interest rates at levels not seen for the previous 300 plus years then nothing is certain.

BananaRepublic

economic wrote: »

wrong and very silly statement. invesments going up more often then fall is true in recent history but crtainly not if you look far enough back. to say this will continue is just a stupid thing to say. i would time the market and not put everything into an invesment in one go.

There are plenty of studies that prove that timing the market is a bad idea. In one they have three investers. One invests at market peaks, one invest at market troughs, and one drip feeds. Obviously the first one does worst. But the drip feeder does best.

Since it is almost obligatory to reference Monevator, here is a link that says the opposite:

http://monevator.com/lump-sum-investing-versus-drip-feeding/

However, the Monevator interpretation of drip feeding is different. He seems to compare investing a large sum at once, with feeding it slowly into the market. The lump sum usually wins simply because being in the market is usually the best option.

But perhaps the more typical scenario is where you have a regular amount such as £1,000 a month to invest. Do you feed it in each month, or save it up and wait for the market to drop before you invest? If you had done this in the past, you would missed long periods of growth. So the drip feed usually wins, depending of course on the start date and duration.

So you have to be a little bit careful when you say "Drip feeding is good" or "Drip feeding is bad" to make clear what you mean. In truth the better statement is that being in the market usually beats holding cash, in the long term.

Regarding history, the markets do well in peace time, and you have to factor in dividends too, so a period of stagnation might still give good returns. If WW3 starts, you might have more important things to think about than the performance of your investments.

masonic

bigadaj wrote: »

However given the 130 odd year of relative outperformance of equities things still aren't guaranteed, there are periods up to a decade or longer where they have underperformed and the fact that we are now approaching a decade of interest rates at levels not seen for the previous 300 plus years then nothing is certain.

Absolutely, past performance is no guide to the future and all that , but if you are pondering whether to invest a lump sum or drip feed into an investment you believe is most likely to fall more often than it rises going forward, then perhaps you are asking yourself the wrong question...

The key is obviously to construct a portfolio that includes asset classes other than equities, that is suitable for your risk tolerance. Once you have done that, you would be fooling yourself if you thought the reason you were holding back your investable cash is to maximise your returns.

BananaRepublic wrote: »

There are plenty of studies that prove that timing the market is a bad idea. In one they have three investers. One invests at market peaks, one invest at market troughs, and one drip feeds. Obviously the first one does worst. But the drip feeder does best.

Since it is almost obligatory to reference Monevator, here is a link that says the opposite:

http://monevator.com/lump-sum-investing-versus-drip-feeding/

However, the Monevator interpretation of drip feeding is different. He seems to compare investing a large sum at once, with feeding it slowly into the market. The lump sum usually wins simply because being in the market is usually the best option.

But perhaps the more typical scenario is where you have a regular amount such as £1,000 a month to invest. Do you feed it in each month, or save it up and wait for the market to drop before you invest? If you had done this in the past, you would missed long periods of growth. So the drip feed usually wins, depending of course on the start date and duration.

So you have to be a little bit careful when you say "Drip feeding is good" or "Drip feeding is bad" to make clear what you mean. In truth the better statement is that being in the market usually beats holding cash, in the long term.

Regarding history, the markets do well in peace time, and you have to factor in dividends too, so a period of stagnation might still give good returns. If WW3 starts, you might have more important things to think about than the performance of your investments.

The studies I usually throw into the mix when this topic comes up are:

http://www.efficientfrontier.com/ef/997/dca.htm
and https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

The decision to hold back money in case markets fall is an emotional one. As I mentioned before, it is a risk mitigation strategy. I've previously likened it to insurance (as it is characterised in the first link) - which offers reassurance, but comes at a cost. It might be the right decision for some, especially those of a nervous disposition, but it will tend to lead to lower returns.

BananaRepublic

masonic wrote: »

Absolutely, past performance is no guide to the future and all that , but if you are pondering whether to invest a lump sum or drip feed into an investment you believe is most likely to fall more often than it rises going forward, then perhaps you are asking yourself the wrong question...

The key is obviously to construct a portfolio that includes asset classes other than equities, that is suitable for your risk tolerance. Once you have done that, you would be fooling yourself if you thought the reason you were holding back your investable cash is to maximise your returns.


The studies I usually throw into the mix when this topic comes up are:

http://www.efficientfrontier.com/ef/997/dca.htm
and https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

The decision to hold back money in case markets fall is an emotional one. As I mentioned before, it is a risk mitigation strategy. I've previously likened it to insurance (as it is characterised in the first link) - which offers reassurance, but comes at a cost. It might be the right decision for some, especially those of a nervous disposition, but it will tend to lead to lower returns.

Those are clearly more sophisticated discussions than my simple scenarios. One point to add is that the choice you make could also include an assessment of the market state. If you are well into a bull market, you might feel caution is due. However, some big names did move some funds partly out of the markets, during the last bull run, and did so too early at their cost. I was lucky and held back investing, and the huge crash provided a huge opportunity, not that I made enough use of it, grrrr. Some might feel that at present a lump sum investment is safer, over the 3+ year time frame.

Glen_Clark

bigadaj wrote: »

we are now approaching a decade of interest rates at levels not seen for the previous 300 plus years

I'd like a look at your crystal ball if its telling you what interest rates will be for the next 10 years

economic

i think its fair to say there is no proven method of investing that works best - if there was everyone would be dong it and you would not outperform. but certainly one should consider the following:

- past is no indication of future at all
- cash has its place as an asset class
- there are times to be bullish on stocks and times to be bearish
- portfolio diversification limits returns
- thinking putting money in the stock market will provide on average higher returns then savings in the long run is not proven at all even with 100 yeas of data.
- time horizon is very important and thus investing depends on personal circumstances with age being an important factor.

bigadaj

Glen_Clark wrote: »

I'd like a look at your crystal ball if its telling you what interest rates will be for the next 10 years

I think given the many false dawns and the failure of qe and other measures to stoke up inflation to reduce both public and private debt then the smart money is on many more years of near zero rates. The fact this is electorally popular given that the average person has more debt than savings is another factor.