Amount equal to 100% current investments....would you re-invest in lump sum or drip feed ....

jelajelavic

So interested to hear peoples views on what they would do (obviously this is different for everyone) for this scenario. Will make some assumptions for the base case.
- Emergency fund covered in cash saving accounts or equivalent
- Own a house with a mortgage, LTV @ 70% - no desire to repay mortgage
- Contributing large amounts to pension so no desire to increase
-20-30 years left working
- Have a current £ amount invested in diversified portfolio and happy with asset/fund allocation as is
-Received a lump sum equivalent to 100% of current investments and wish to invest that whole amount into same funds within next 12 months
Now given may be in some turbulent times and/or at (almost) record valuations and the £ amount to invest is equal to total invested already....
......would you put the whole amount in same investments as a lump sum or pay 1/12th over next year (or 1/6th over next 6 months) for £ cost averaging?

Aminatidi

I'm not massively scientific with this stuff but I would consider it differently if it was 100% risk assets to if it was 40% risk assets I think.

I'd probably go with a few lumps rather than being massively mathematic about it.

steampowered

As it sounds like the investment horizon in that example is pretty long term, I would just put all the money in straight away. Statistically that is likely to lead to better outcomes than missing out on a year's investment growth.

The only caveat is that I would keep some back until April to make the most of the next tax year's ISA allowance.

Audaxer

jelajelavic said:

- Contributing large amounts to pension so no desire to increase
-20-30 years left working

As you have 20-30 years left working probably best just to invest it all at once, or in 3 or 4 lumps over the year if you worry about a possible crash just after you invest.

I know you said you are already contributing large amounts to your pension and no desire to increase, but if you don't need access to the investments until you retire, would it not be better putting as much as you can of the lump sum into your pension or a separate SIPP over the next few years, as you can invest in pensions up to your annual earning amount, up to £40k max per year. You would then get 25% tax relief or more if you are a higher rate tax payer on these additional contributions. If you think you will need access to the investments before you retire, then it would of course be a better plan to invest it up to your annual allocation into an S&S ISA.

DiggerUK

Two views I will comment on.
The first is a criticism of  your casual attitude to debt, namely the mortgage. Kill it off ASAP. A secure roof over your head with no debt attached to it, will mean no third party who can take it from you.
The second is how to invest, best wisdom is to 'average in' over time as it smooths out fluctuations. A position I agree with..._

NedS

Statistically, all in lump sum performs better than drip feeding, as overall markets go up more than they go down (hence why investing for the long term always produces positive returns).

That said, given we have had a long bull run, statistically the chances of the market continuing to go up vs going down are reduced from the long term norm. That swings things toward a more neutral position or in favour of drip feeding, so it is perhaps not a clear cut as is the norm.

Either way, make a decision that you are comfortable with and stick with it.

Mr.Saver

I never do drip feed. Regardless of how much I get, I'll invest them all as soon as I can. Because of the same reason @NedS said: Statistically, all in lump sum performs better than drip feeding.

Mr.Saver

DiggerUK said:

Two views I will comment on.
The first is a criticism of  your casual attitude to debt, namely the mortgage. Kill it off ASAP.

It really depends on the person's risk attitude. You may prefer to be debt free ASAP, but I'd rater prefer to keep low interest loans (mortgage) as long as I can. That's because I believe that over long period of time, returns on equities have much better chance to outperform the mortgage interests. If I can afford being wrong (i.e. I can keep up with the mortgage regardless of the market movement), I will not repay anything more than the required minimal.

DiggerUK said:

A secure roof over your head with no debt attached to it, will mean no third party who can take it from you.

Banks won't take your home away if you don't miss the repayments. So as long as you have a reliable job, enough emergency fund and sufficient insurance protections (for your home and your income), this is the least you'd need to worry about.

DiggerUK said:

The second is how to invest, best wisdom is to 'average in' over time as it smooths out fluctuations. A position I agree with..._

But statistically it has higher chance to underperform the lump sum approach. Therefore, it once again depends on the person's risk attitude.

DiggerUK From your comments, I can see you're pretty risk aversion - you'd prefer to repay the mortgage before investing. In contrast, I'm the exact opposite, I'd take out a loan and invest it if the repayment term and interest rate are both suitable. We are almost at the two extremes of the risk scale, most will find themselves somewhere in the middle. OP will need to find out his/her own risk attitude, and then make the appropriate decisions accordingly.

sabretoothtigger

> Own a house with a mortgage, LTV @ 70% - no desire to repay mortgage
Not surprising, we live in a time of cheap debt.     The LTV should be under 50% so the best deal is possible to obtain, ideally the mortgage should be fixed rate and this is a kind of investment.     Invest over time, if it was a year ago and we'd fallen for months maybe do differently but now spread it and split it with that strategy to reduce risk from that weight of debt over your head.

   I think DiggerUK remembers a time when rates were 10% and rising, I was lucky to fix my savings there and not having to pay a mortgage, prices fell alot.   Its profitable to have choices thats the reason to overpay, it is an investment.  The ultimate purpose of money is security, thats its best use.

DiggerUK

OP,  Mr.Saver mentions acceptance of risk, it's a popular mantra that does and doesn't mean something. What is more pertinent here is if what you do is wise or unwise. 

One thing is for sure, if you fall in to the trap of believing things will only continue getting better, then you will find yourself ill prepared for anything similar to  2007/8. Investment returns for now are good, and mortgage rates are cheap, what will you do if that changes.
The major problem for most people in 2007/8 was that they had not stress tested their finances and kept one eye on such a situation happening.

I'd like to say hello to sabretoothtigger, an old poster who I haven't seen for a longtime. st will confirm to you that Digger Mansions moved all its retirement savings in to gold a long time ago, something that was condemned here as a huge risk, but has proved the wise move.......and st is right, I can remember double digit mortgage rates. Don't think they won't happen again.

I don't refer to myself as being in the "risk aversion" brigade, just the wise old bird brigade..._

jelajelavic

Many thanks for the comments and opinions so far.
DiggerUK, I agree that repaying the mortgage is a valid choice and suitable for some and I have in fact been making some overpayments but not the maximum allowed. I also take the point on even more additional pension contributions make sense from a tax point of view. Both of these have annual limits and also theres a consideration about liquidation. If the investments are for long term (over 10 years) they still may be needed prior to pensions and are easier to liquidate, even if this ends up being in 15/20 years (but earlier than pension age)

Mr Saver, yes im aware and agree that statistically youre better with a lump sum is more likely to be better over a long time, but is that more when comparing investing for 10 years vs drop feeding for 10 years. In this example it would be lump sum or drop feed to that same lump sum amount over 12 months then leave long term (a hybrid of sort)

Also the next 12 months may not be as normal (I know nobody knows the answer to that but opinions are interesting)

 So for this let’s assume mortgage overpayments and additional pension contributions are out either due to maxed out or access availability before pension age.