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drip-feed buy every month or wait for cash to accumulate?

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I have never really done drip-feeding to my stocks and shares ISA although I have been told this is the best way to do it. All I have done in the past is to buy when I see an opportunity by funding my account in a lump sum.
I have been thinking about regualr investments now and thinking about giving drip-feed a try so I can invest regularly.


My plarform charges a fixed fee regardless of transaction amount.


The question I had is that if I save say £100 each month should I invest the money straightway (each month)? This means I lose a chunk each month in transaction fees. Or should I let it accumulate for a while so that there is say £500-600 at least so that I don't lose much in terms of transaction charges?


Basically how do I invest regularly given this situation?
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Comments

  • masonic
    masonic Posts: 27,158 Forumite
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    The best way to do it on average is to invest a lump sum on day 1. Most people don't have a lump sum on day 1 so they drip-feed.

    Broadly there are two platform models, one with a percentage platform fee and (normally) free trading of funds, or one with a flat rate fee and charges for trading. Even in the latter category, regular investing plans at low cost (such as £1 to £1.50) are usually available. Investing £100pcm is going to cost you around 1%,

    Personally, if I only had £100 to invest per month, I'd open a First Direct or HSBC or M&S or Nationwide 5% regular saver, and use that for 12 months before finally dumping the money into my S&S ISA at maturity. It's not ideal, but reduces the chances of a worse overall outcome than taking the 1% hit.
  • eskbanker
    eskbanker Posts: 36,966 Forumite
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    In general, my understanding is that drip-feeding, in the sense of purchasing monthly as opposed to accumulating lump sums, is statistically a better option (because the long term direction is upwards), but if the advantage of doing so is eroded, or even completely obliterated, by transaction costs, then that would indeed reverse the recommendation.

    It isn't practical to model which is best without knowing the charges and making assumptions about growth, but have you considered using a platform that doesn't charge for purchases?
  • As above - I would be surprised if your platform didn't offer a greatly reduced fee for a regular saving plan.
    : )
  • IMHO, the question wasn't really about lump sum vs drip feeding. just about, if you are drip feeding, and there are costs per investment, is there a way to decide if you are investing too frequently?

    yes, there is.

    e.g. if you have £100 to drip feed per month, and it costs £1.50 to make each investment, and you expect the average monthly return from your investments to beat cash by 0.5%, then the amount you should save up before investing is calculated as:

    sqrt( 200 * 100 * 1.50 / 0.5 ) = £245

    (adjust those figures (100, 1.50 and 0.5) if they aren't correct for you. (the 200 is a constant.))
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    OP, does your investment platform not have a regular investment option ? AFAIK most do and in that case they offer a lower cost for these investments compared to one-off purchases.
  • Thanks for the replies folks.


    My platform is SVS XO. I found it right here on MSE many years ago as best buy and have kept it since. It kind of suited my investment behariour. There is no management charge or anything, just a flat fee for making transactions, no inactivity fee either. I cannot find any other plans (execution only) on their site.
    Maybe I need to switch the platform? any recommendations?



    The £100 figure was an example, it will differ from month to month. As someone pointed out I was more interested in finding out whether frequent buy still makes sense given the cost of transactions - sounds like it does not unless I find a plan/platform that allows me to trade frequently.


    As for putting it in the high interest savings/current bank accounts - well done mate, it's a neat idea but in my case I have already used the option to the level that it is becoming a nuisance to keep track of them all. Some have already reached maturity others reaching soon.





    One more question actually, I have only ever invested in individual companies (risky - I know). I was thinking more about funds goings forward - any ideas where to start?
    Marriage is hard. Divorce is hard. Choose your hard.
    Obesity is hard. Being fit is hard. Choose your hard.
    Being in debt is hard. Being financially disciplined is hard. Choose your hard.
    Communication is hard. Not communicating is hard. Choose your hard.
    Life will never be easy. It will always be hard. But you can choose your hard.
  • masonic
    masonic Posts: 27,158 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    My platform is SVS XO. I found it right here on MSE many years ago as best buy and have kept it since. It kind of suited my investment behariour. There is no management charge or anything, just a flat fee for making transactions, no inactivity fee either. I cannot find any other plans (execution only) on their site.
    Maybe I need to switch the platform? any recommendations?
    I used to use SVS XO (back when they were SVS Securities), but don't use them since they hiked their charges to £8 per trade. They don't have a regular investment plan.

    For small amounts, individual shares, ETFs and investment trusts are not usually cost effective to buy. The cheapest option would be AJ Bell with a £1.50 charge per regular buy and £9.95 per sell plus 0.25% custody charge. There is also Interactive Investor, who charge £22.50 per quarter, but give you £22.50 in free trading credit. They charge £1 per regular buy and £10 per sell - this can work if you have a large balance and/or trade frequently enough to use the trading credit.

    But I would opt for open ended investment funds (unit trusts / OEICs). You have a few options depending on your investment choices, including Vanguard Investor (only Vanguard funds, 0.15% custody, no transaction charges) and Cavendish Online (wide choice, 0.25% custody, no transaction charges).
    As for putting it in the high interest savings/current bank accounts - well done mate, it's a neat idea but in my case I have already used the option to the level that it is becoming a nuisance to keep track of them all. Some have already reached maturity others reaching soon.
    Well what are you going to do with the money at maturity? You can't just shove it back into a new regular saver account all at once.
    One more question actually, I have only ever invested in individual companies (risky - I know). I was thinking more about funds goings forward - any ideas where to start?
    This would be a good idea. Next steps depend on whether you want to go via the index tracker route (Vanguard would be a good option), or actively managed funds.
  • masonic wrote: »
    I used to use SVS XO (back when they were SVS Securities), but don't use them since they hiked their charges to £8 per trade. They don't have a regular investment plan.

    For small amounts, individual shares, ETFs and investment trusts are not usually cost effective to buy. The cheapest option would be AJ Bell with a £1.50 charge per regular buy and £9.95 per sell plus 0.25% custody charge. There is also Interactive Investor, who charge £22.50 per quarter, but give you £22.50 in free trading credit. They charge £1 per regular buy and £10 per sell - this can work if you have a large balance and/or trade frequently enough to use the trading credit.

    But I would opt for open ended investment funds (unit trusts / OEICs). You have a few options depending on your investment choices, including Vanguard Investor (only Vanguard funds, 0.15% custody, no transaction charges) and Cavendish Online (wide choice, 0.25% custody, no transaction charges).


    Well what are you going to do with the money at maturity? You can't just shove it back into a new regular saver account all at once.


    This would be a good idea. Next steps depend on whether you want to go via the index tracker route (Vanguard would be a good option), or actively managed funds.


    Many thanks mate, very useful post. I will look into the Vanguard and Cavendish funds that you have mentioned. I will probably try to go down the tracker route to keep the AMC to its minimum, I will decide when I know more.
    I think I need to first decide how I want to invest over the next few years and in what and then I will decide whether I should switch platforms. I am hoping I will be able to switch the ISA account to another provider without transferring all my existing investments i.e. hold my existing investments with SVS but for future investments switch the ISA to another provider - Is that something I can do?
    Marriage is hard. Divorce is hard. Choose your hard.
    Obesity is hard. Being fit is hard. Choose your hard.
    Being in debt is hard. Being financially disciplined is hard. Choose your hard.
    Communication is hard. Not communicating is hard. Choose your hard.
    Life will never be easy. It will always be hard. But you can choose your hard.
  • atush
    atush Posts: 18,731 Forumite
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    i like drip feeding. Look up pound cost averaging
  • badger09
    badger09 Posts: 11,572 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Many thanks mate, very useful post. I will look into the Vanguard and Cavendish funds that you have mentioned. I will probably try to go down the tracker route to keep the AMC to its minimum, I will decide when I know more.
    I think I need to first decide how I want to invest over the next few years and in what and then I will decide whether I should switch platforms. I am hoping I will be able to switch the ISA account to another provider without transferring all my existing investments i.e. hold my existing investments with SVS but for future investments switch the ISA to another provider - Is that something I can do?

    I think you've got your order of decisions wrong. I'd suggest
    1) decide what you want to invest in
    2) decide how you're going to invest (lump sum, drip feed etc)
    3) choose appropriate platform

    If you want to keep all your existing investments currently in your S&S ISA with SVS, you can do so.

    On or after 6th April 2019 you simply open a new S&S ISA with whichever provider you've chosen, and start paying into that one. What you can't do, is pay into S&S ISAs with both providers during the same tax year.
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