Drip feed or lump sum

[Deleted User]

Hi

I have a S&S ISA with two passive tracker funds. I have been paying a monthly amount into each fund for the past year. I have been thinking recently about the differences between my 'drip feed' approach and a lump sum investment and which might be better. Is there evidence to support one being better than the other?

Thanks

Linton

Investments tend to rise over time. If you do not believe this you would be foolish to invest
The future is unpredictable
Therefore the longer you stay invested the more you will gain on average
Therefore investing as soon as you have the cash available would provide higher long term returns than delaying.

Alistair31

I found this to be a very interesting article. No affiliation whatsoever.

https://ofdollarsanddata.com/how-to-invest-a-lump-sum/

NoMore

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

2/3 of time lump sum is better, of course you don't know in advance!

dunstonh

I have a S&S ISA with two passive tracker funds.

Tracker funds would suggest single sector funds. Single sector funds are designed to be held in a portfolio of funds covering all the sectors. That typically means 8-12 funds. So, if you are only holding two, then you are not investing well.

I have been thinking recently about the differences between my 'drip feed' approach and a lump sum investment and which might be better. Is there evidence to support one being better than the other?

Yes plenty of evidence.

Statistically, lump sums invested at the earliest opportunity give better returns in the majority of cases. However, there will be periods where phasing will be better.

eskbanker

Perhaps also worth clarifying that if you're starting with a lump sum then getting it invested sooner rather than later is the smart choice.

Conversely, if you don't have a lump sum to start with then there's no point in waiting until you've built one up, so in this scenario it's better on average to drip-feed rather than deferring the purchase.

These are just rules of thumb of course and can be affected by other factors such as transaction fees....

[Deleted User]

dunstonh wrote: »

Tracker funds would suggest single sector funds. Single sector funds are designed to be held in a portfolio of funds covering all the sectors. That typically means 8-12 funds. So, if you are only holding two, then you are not investing well

I'm not too sure what you mean? I have a passive tracker for the FTSE World (ex UK) Index which has a cumulative performance of 79% over the last 5 years and 4.5% over the period I have invested. My other tracker tracks the FTSE USA Index with a cumulative performance over 5 years of 106% and just under 10% for the period I have been investing. I have just added a third fund covering the pacific region excluding Japan to diversify further. These are all in the H&L wealth 50 funds.

ColdIron

Deleted_User wrote: »

I'm not too sure what you mean? I have a passive tracker for the FTSE World (ex UK) Index which has a cumulative performance of 79% over the last 5 years and 4.5% over the period I have invested. My other tracker tracks the FTSE USA Index with a cumulative performance over 5 years of 106% and just under 10% for the period I have been investing. I have just added a third fund covering the pacific region excluding Japan to diversify further. These are all in the H&L wealth 50 funds.

You are not diversifying with your US and AP funds, you are just overweighting sectors already covered by your global fund. Adding a UK equity tracker would increase the diversification as you would be adding something that you don't already have

atush

As mentioned above, generally speaking a lump sum is the most efficacious. however there are other conciderations.

if a market correction happens soon after and this would bother you- you need to consider the ramifications- if you sold out thru panic you wouldnt see any upside corrections. So then you mght find pound cost averaging ie montlhy payments in to be less stressfull. and thus does mean you dont have to keep your eyes on the markets.

Of course, if you dont have huge lump sums, and save thru monthly income, you will find the pound cost averaging method does have its advanteges. For many years, this was the only way for us to invest. Now we have lump sums to invest I still generally prefer this method although I will make lump sum investments too.

fred990

Yup 'time in the market' rather than 'timing the market' for me too.

[Deleted User]

ColdIron wrote: »

You are not diversifying with your US and AP funds, you are just overweighting sectors already covered by your global fund. Adding a UK equity tracker would increase the diversification as you would be adding something that you don't already have

What's an AP fund?

With regards to a UK fund, I have avoided this intentionally due to the uncertainty surrounding brexit. From the investment books I've read so far, markets don't like uncertainty and to me brexit is exactly that. Anyway I'm sure it's been discussed on the boards at length and there will be differing opinions on this! Just to add as well, I don't invest the same amount in every fund to try and spread the risk further. In terms of weighting the international fund is about 50% American with the rest geographically spread. The american fund is 100% USA and the Pacific fund has no exposure to the US. I have been looking at a European fund and a Chinese fund as well but at present the UK just looks too uncertain (in my opinion).