Lump sums or monthly drip feeding

Seshwan

Hi all,

Quick one. I opened a S&S ISA last week and put £1000 into the Vanguard LifeStragey 80 fund.

My broker is Charles Stanley and my question is simply if someone could advise on the advatages/disadvantages to drip feeding say £100-£200 per month as opposed to waiting until I have bigger sum say 500 or 1000?


Many thanks

Malthusian

Assuming there isn't a difference in charges, it is very probably best to drip-feed it rather than waiting to build up a lump sum.

(This assumption is well worth checking because some platforms charge you for every trade, although the cost might be reduced or removed for monthly Direct Debits. So the worst case scenario is that monthly investments would cost 12x as much as an annual lump sum which would be disproportionate for the relatively small amounts you are talking about. But I'm not familiar with Charles Stanley's charges.)

It is impossible to predict short term fluctuations in value but what you do know is that if you wait, you miss out in dividends. Therefore in general, the earlier you invest the better.

bigadaj

Csd charges are 0.25% on the sums invested so it won't make any difference in terms of trading costs.

Simplistically most people would say get the money in as soon as you can as it is time in the market rather than timing the market. For people who are saving from salary income then monthly saving makes a lot of sense, the money is going in as early as it could do really. If you have a lump sum then placing that in one go would mean it's all in and should give the highest return, the problem with this is that you could buy at a shirt term market high, but that's a risk which could be managed by say buying in three lumps at monthly intervals.

eskbanker

As well as threads on here discussing the pros and cons, there are a number of articles available elsewhere on this, such as:

http://monevator.com/lump-sum-investing-versus-drip-feeding/
http://www.which.co.uk/money/savings-and-investments/guides/the-beginners-guide-to-investment/lump-sum-or-regular-savings/
http://www.thisismoney.co.uk/money/diyinvesting/article-2352432/Lump-sum-vs-regular-investing-How-ease-stock-market-fears.html

However, these typically consider a lump sum as something you already have rather than something you'd be saving to build up, so if you don't actually have a lump sum then it'll probably make more sense to invest regularly, assuming neutral charges.

JohnRo

CSD collect the DD on the 3rd and invest on the 10th each month.

Seshwan

Thanks for this guys, much appreciated. I did suspect that as my brokers charges are percentage based that drip feeding would be fine but with my limited knowledge thought it would be best to clear it up