Stocks and Shares ISA

Albermarle

Is this pre Brexit downturn a good or bad time, is it best to wait for the outcome good or bad?

Nobody knows . If anybody knows when is always the best time to invest then they would be a multi billionaire.

MK62

With the caveat that nobody knows today which approach will be best, you stated that you have virtually no pension.......in that boat I would be more concerned about the potential for losing capital should markets fall, than the potential of not making as much gain if marks rise. Hence I would probably invest it in tranches over a period........what length of period is a call you have to make, balancing the two potential outcomes over time......without hindsight there is no right answer here, it will come down to opinion in the end.......

Note though that we are dealing in likelihoods here......there is no certainty either way....that's the nature of investing.
Basically drip feeding is "pound cost averaging".....several sites have good explanations (dollar cost averaging is the same principle of course, just for the US).....try http://www.morningstar.co.uk/uk/news/62457/the-benefits-of-pound-cost-averaging.aspx

dunstonh

I'd like to invest around £20K in a stocks and shares ISA.

Why ISA and not pension?

Why is drip feeding preferable to investing a lump sum?

its not. Statistically, paying a lump sum up front results in better returns in the majority of periods.

I'm happy with medium risk so should I just try a global fund like Vanguard or H

if you say you are happy with medium risk then why you are looking at a medium/high to high risk fund?

Is this pre Brexit downturn a good or bad time, is it best to wait for the outcome good or bad?

If you keep waiting for outcomes to appear then you would never invest. Brexit is small fry. Plus, we havent even got to stage 2 yet. Stage 1, the exit, is the easy and quickest bit. And just look at the mess that is.

stephenadarglas

Of course if you invest the total amount you can benefit from dividends/income as well as potential growth.

Mark_Bedford

The answer to whether you invest all now or in bits (drip feed) is about the average price you achieve assuming stocks go up long term. If the stock market were on an all time low (imagine) you would be better doing a lump sum. Why? Because your average price would be the all time low and you would have got in at a very opportune time.

Imagine the stock market falls 50% over the next year and rallies back 100% from there i.e. it falls 50% and then closes in two years back where it is now you would be very much better off "drip feeding" in because your average price would be below the finishing value in two years or its value now (it fell and rallied by to where it is now in two years from now).

Drip feeding or not depends on the price behaviour of the market or your forcast of it.

Prism

You could also drip feed over say the next two years as the market rises steadily at which point it drops 50% just as you finish drip feeding. Or you could invest it all today and it crashes tomorrow. Or it doesn't crash for another 10 years

bd10

I would not only look at the upside potential of stocks/funds possibilities but also at their drawdowns from peaks. As it was said here before, returns are unpredictable so the question is how much volatility do you want? Suppose you invest 20k in one go, could you deal with a 10% drawdown (just an example)?
There are plenty of online resources for investment fund comparison, so you can select funds that fit your risk profile. Then check how the funds performed during the 2007/08 crash. The upside will take care of itself, the downside you need to protect. With 20 years to retirement, that's much easier to handle, in retirement, that's what I'd watch out.
Equities have performed exceptionally well during the past 3-4 years, no small thanks to all the cheap money. This may change overnight.
I am not intending to discourage equity/funds investments at all. Right now I am highly aggressive in the selection of funds/equities. That will change in decades to come.
Have a look at Hargreaves for example, they have model portfolios based on risk preferences. This might give you some ideas, what split/diversification they suggest. Take it from there.
Good luck!

darkidoe

jicms wrote: »

I've just reached retirement with virtually no pension. I have savings but am fed up with chasing the market to keep an interest rate of currently 1.5%. I'm also disposing of my BTL due to the hassle and increasing taxes.

I'd like to invest around £20K in a stocks and shares ISA. I have absolutely no knowledge and the more I read the more confused I become. I'm happy with medium risk so should I just try a global fund like Vanguard or HL £1. Is it unlikely I'll see any decent return in less than 5 years? Why is drip feeding preferable to investing a lump sum?

It might be better for you to look into a pension (SIPP) to get some tax relief. If you are retired and have no other sources of income, you can basically get tax relief for free.

It's difficult to say whether investing into a global fund in a S&S is suitable for you without knowing what your other assets are and your general plan for retirement, expenses, other income. Also how old you are and how long you expect to drawn on your 'savings' for?

JohnRo

Mark_Bedford wrote: »

If the stock market were on an all time low (imagine)

The problem with this hypothesis is that in reality you'll only ever know it was a new all time low long after the fact. Otherwise how would you ever know that it is the new all time low and that markets won't just keep falling as they have been doing on the way there; then know that they are indeed on the way back up and won't just reach for another new all time low soon after you've piled in with all your hard earned cash.

When all you're seeing, hearing and reading (at that point) is that it's the end of capitalism as we've known it, the CB's can't bail out the investment banks this time, markets may stop functioning and any recovery will take at least a generation etc.

That's the problem with sitting out waiting for the big drop with a view to making a quick and easy killing in the recovery. It's neither of those things unless you're incredibly brave and extremely lucky.

Whatever happens you can rest assured when the big crash happens the view from there will look and feel very different to the perceived view from here and the right time to have piled in will only be evident after a sustained recovery is well under way, which could take many months.

It's far more likely once the dark clouds have settled in and sit heavy over markets that few in their right mind would ever dare to pile into equities when they've been falling like a brick with no apparent end in sight.

Why would anyone risk losing a fortune like all those fools who didn't get out in time.. (again wise after the fact)

Those same fools who are guaranteed to capture the bottom of the next bear market crash and all the subsequent recovery by staying invested, sticking to the plan and sitting it out.

Imagine the stock market falls 50% over the next year and rallies back 100% from there i.e. it falls 50% and then closes in two years back where it is now you would be very much better off "drip feeding" in because your average price would be below the finishing value in two years or its value now (it fell and rallied by to where it is now in two years from now).

Only if the cash drip feeding the investment, as opposed to an equivalent cash lump on day one, was fully deployed entirely within that two year time frame of this imagined fall and subsequent recovery. There's also much larger lump sum dividend payouts to factor into the comparison.

The chances of that scenario ever playing out like that real world are all but none existent and even if it did occur, in order to benefit to the extent described would require extreme good fortune.

The Vanguard study demonstrated that drip feeding is far more about psychology and/or necessity than it is about being a reliable method that generates a better investment outcome.

MK62

JohnRo wrote: »

The Vanguard study demonstrated that drip feeding is far more about psychology and/or necessity than it is about being a reliable method that generates a better investment outcome.

That's not the way I read it, and in the conclusion, that's not what Vanguard are really saying either I don't think.....they say if you believe the risk premia are such that markets will rise over the investment period in question, then lump sum investing is the way to go (and nobody is arguing that).....however they say if you believe otherwise then cost averaging may be more appropriate.
Historically there is a c65% chance of being better off using lump sum investing.

They also stated that an investor would have made a loss more often using lump sum investing and those losses would have been bigger, on average, than using cost averaging.
With cost averaging (or drip feeding), you get some downside protection, but as ever there is no free lunch.....that protection can cost you some gains if markets rise.