Drip feed investing or tactical?

sixpence.

Hello all

Have been reading the amazing book The Intelligent Investor by Benjamin Graham and getting my head around stock market investing. I recommend it to any other beginners. It's clear and not at all hard to understand.

The book favours a "drip feed" approach when depositing money into an index fund, rather than a lump sum, so as to guard against rapid falls or rises in the market over the long term. For example: 1k per month rather than two lump sums of 6k six months apart will lead to higher returns long term.

That all sounds well and obvious to me (now that I've learned it) but is anyone on here inclined to watch the market and wait for it to drop? Say if it drops 1-2% in a day, invest in that day rather than any other day that month. Have people found results doing this? Or is it best to just have an incremental plan and stick to it.

Also here is a link to the thread that recommends books if people are interested: https://forums.moneysavingexpert.com/discussion/4752194

jamei305

If last August you had decided to wait for a 1 to 2% drop in the S&P500 you would still be waiting and would have missed out on a 10% rise.

pip895

If I was adding to my pension/investments I would drip feed. I do have cash that I would put into shares if there was a drop though, but I am looking for more like a 20/30% drop - I am however, very happy for it to remain uninvested long term lol.

Linton

Invest when you have the money available. On average waiting loses more than it gains.

ChesterDog

The trouble with waiting for a dip is that, while you feel you've done something worthwhile by hanging on for it to happen, the market can still be at a higher level in the dip than it was when you started waiting.

dunstonh

The book favours a "drip feed" approach when depositing money into an index fund, rather than a lump sum, so as to guard against rapid falls or rises in the market over the long term. For example: 1k per month rather than two lump sums of 6k six months apart will lead to higher returns long term.

Several issues with this.

1- single sector investing is bad investing. So, recommending someone use an index tracker (as in one) is just really poor. i.e. 100% in UK Japanese equity. Who in their right mind would do that? Other than the author of that book (based on what you have said).

2 - Statistically, growth periods significantly outnumber negative periods. So, right from the start you are playing odds that are not likely to work in your favour. So, if the book says it will lead to higher returns, then it is not correct. It should say it could lead to higher returns in a small number of cases but in most cases it would lead to lower returns.

3 - If you believe in the passive approach, then making management decisions trying to time the market go against that principle.

firestone

But would pound cost averaging not be a good start for a person new to investing?It may miss gains in a rising market but if the market drops they are buying more and hopefully it gets them used to the idea of investing.
While time in the market is probably most important when to time the market is harder and a lump sum in a passive may drop even more then an active where the manager may be able to protect the downturn (but no guarantee)
I think passive funds should be good for drip feeding due to the moves up & down in the market.While investing a lump in a passive may hypothetically get a high in the index that after a drop may not be reached again or certainly not for a long time.Which will not calm the nerves of a first time invester

eskbanker

Much depends on the availability of lump sums when weighing them up against drip-feeding - if you're starting from a lump sum then getting it invested immediately is (on average) a better approach than drip-feeding it. However, if a potential investor was considering saving up a lump sum over a period of months before investing then drip-feeding as soon as the money is available ought to be a better solution.

Which is all a roundabout way of expressing the familiar 'time in the market, not timing the market' maxim!

bostonerimus

IMHO you should get into the market as fast as you can. So if you have cash put it in a diversified portfolio appropriate to your situation asap. There'll be plenty of opportunity to drip feed with your pensions and ISAs as they should get a percentage of your pay cheque each month.

sixpence.

dunstonh

1 - Would be using a Vanguard 60% equity for the majority of my portfolio + an Asia ex japan index fund for about 10% of it. Sorry that was totally unclear. The author supports diversification as well

2 - Totally get you, thanks for saying that so clearly!

3 - So far have planned my portfolio to be:
75% Vanguard LS (60% equity)
10% Asia ex japan index fund
15% mixed funds that diversify through sector etc (e.g 5% UK smaller companies, 5% Emerging markets, 5% some specialist stuff)

Won't touch the first two except to top them up, but intend to have a more active approach with the mixed funds/rouge 15% of the portfolio.

sixpence.

eskbanker - are you saying that if I had 10k to drip feed in it would be better to put in a lump sum of, say, 2k and then drip feed the rest at like £500 quid per month?

bostonerimus - I definitely want to invest over the next three years incrementally, but I'm not sure if I'll have more than a lump sum of about 24-28k to put in (might have to put my income towards something else). Best to do what I suggest above to Eskbanker? Lump sum and then small investments?