Timing the Market

brianh

If this year proves anything is that most of us do not have the investment or clairvoyance skill to get the market timing right. Listening at the prophets of doom (including RBS), I stopped our monthly ISA investment in the early part of the year with the idea that we would come back in to the market around October after the volatility of the Euro referendum results had subsided. This doesn't look too smart right now! For most of us the drip feed approach is likely to prove the better option (certainly less riskier) than lump sums using our timing judgement.

bottleandahalf

brianh wrote: »

If this year proves anything is that most of us do not have the investment or clairvoyance skill to get the market timing right. Listening at the prophets of doom (including RBS), I stopped our monthly ISA investment in the early part of the year with the idea that we would come back in to the market around October after the volatility of the Euro referendum results had subsided. This doesn't look too smart right now! For most of us the drip feed approach is likely to prove the better option (certainly less riskier) than lump sums using our timing judgement.

And ignore the prophets of doom.

bigadaj

These expert analysts eh, worth every penny?

AnotherJoe

brianh wrote: »

If this year proves anything is that most of us do not have the investment or clairvoyance skill to get the market timing right. Listening at the prophets of doom (including RBS), I stopped our monthly ISA investment in the early part of the year with the idea that we would come back in to the market around October after the volatility of the Euro referendum results had subsided. This doesn't look too smart right now! For most of us the drip feed approach is likely to prove the better option (certainly less riskier) than lump sums using our timing judgement.

There's more to volatility than the one event of Brexit. Volatility is constant, there's always soemthing happening. If volatility scares you then either dont invest at all, or do but dont look very often

AndyT678

brianh wrote: »

If this year proves anything is that most of us do not have the investment or clairvoyance skill to get the market timing right. Listening at the prophets of doom (including RBS), I stopped our monthly ISA investment in the early part of the year with the idea that we would come back in to the market around October after the volatility of the Euro referendum results had subsided. This doesn't look too smart right now! For most of us the drip feed approach is likely to prove the better option (certainly less riskier) than lump sums using our timing judgement.

I think that depends on what exactly you mean by drip feed. If your regular ISA contribution was £1,000 per month from your salary then I agree. But that's not really drip feeding; that's just investing as soon as you have money available to do so.

On the other hand if you are currently sitting on £120,000 of cash that you want to invest but you're drip feeding it in at £1,000 per month so that it will take you 10 years to be fully invested then I disagree. Better to lob it all in at the start IMO.

LXdaddy

AndyT678 wrote: »

I think that depends on what exactly you mean by drip feed. If your regular ISA contribution was £1,000 per month from your salary then I agree. But that's not really drip feeding; that's just investing as soon as you have money available to do so.

On the other hand if you are currently sitting on £120,000 of cash that you want to invest but you're drip feeding it in at £1,000 per month so that it will take you 10 years to be fully invested then I disagree. Better to lob it all in at the start IMO.

I agree with the distinction between these cases.

ischofie1

The best investment I ever made was to pay £20 for Tim Hayes book (Smarter Investing).
I've based my forward strategy on many things I gleaned from it but 2 things were key:-


No 1. Never try to time the market.
No 2. Never listen to "experts" who may persuade you to deviate from No 1.


It's stood me well up to now & my portfolio is up about 20% since mid Feb.
The Brexit has only had a + ve effect.

JohnRo

brianh wrote: »

For most of us the drip feed approach is likely to prove the better option (certainly less riskier) than lump sums using our timing judgement.

The investment risk itself is not altered by how you invest, amounts being equal, what drip feeding an amount does is mitigate your expose to the investment risk and rewards you're taking from the start.

A lump sum in contrast is exposing all the money to the investment risk and reward from the outset, where drip feeding money in over time simply defers this level of exposure to investment risk and reward to a future date. That's not to say the un-invested balance isn't exposed to any risks, since equities have proven over time to beat bonds and cash, the un-invested balance is exposed to that risk.

It's not correct to imply one method or the other is 'safer' imo. That's not to say it doesn't 'feel' safer and psychological effects and resulting behaviour are important factors for private investors as they contain the by far the greatest risks imho.

The Vanguard study shows most conclusively that a lump sum is actually the better option with the expectation of having average luck on entry.

ischofie1

I fully agree with your assessment JohnRo.
I had the dilemma 2 years ago when I transferred a large sum direct in to equity funds having contemplated drip feeding over 1 year, IE a 1/12th of the transfer each month.
As it happens I would have been better drip feeding but it just comes down to luck, IE where you jump in on the cycle.

If your in for the long term then there will be many cycles hence it'll be less important that you joined at the top or bottom of a cycle.

talexuser

I bung in the max amount every April 6 or as near as possible. I'm investing because expect it to go up - eventually. If I expected it to go down I wouldn't drip feed, I'd just wait a bit. After 22 years of ISAs, downturns don't matter much anymore, there'll still be enough for retirement barring nuclear war or total economic collapse.

Broken_Biscuits

ischofie1 wrote: »

The best investment I ever made was to pay £20 for Tim Hayes book (Smarter Investing).
I've based my forward strategy on many things I gleaned from it but 2 things were key:-


No 1. Never try to time the market.
No 2. Never listen to "experts" who may persuade you to deviate from No 1.


It's stood me well up to now & my portfolio is up about 20% since mid Feb.
The Brexit has only had a + ve effect.

I got the same book free from my library.

So I'm up an additional £20 plus accumulation and dividends.

#Win.