How best to drip feed?

stewarthenry

With markets dropping, there are opportunities to invest. As we don't know when the bottom will happen, the best method looks like drip feeding.
My preference would be to invest, say, £100 each day through the crisis. However I suspect this is not cost effective due to charges.
What is the most cost effective way (or platform with lowest fixed charges) to drip feed investment into the stock market through the coming months?

Alistair31

What do you intend investing in ?

nervousinvestor

Have a look at the interactive investor forum or ideaing.com -  trading is pretty cheap there but £100 probably won’t be cost effective - I’d look at £500 per week.  Although my inclination is that this could tip into a global recession - which could last years not months.  Hence monthly drip feeding over a few years could be the best option. This won’t be a typical V shaped recovery.  A vaccine won’t be available until 2021.  Don’t mean to be a pessimist but the signs are that the cost to businesses would massively hit employment and tax revenue too.  

kinger101

Investment lump sums on some platforms can be as low as £100.  If you use OEICs, there's no buy-in cost.

Alexland

I don't understand why you are looking for the "lowest fixed charges" when regularly investing small amounts more suitable for accounts with percentage charges? If you just want general market exposure have a look at Vanguard Investor.

bowlhead99

As Alistair says it does depend what you are going to buy because investment platforms have different charges for different asset types - e.g. a common model is to charge an annual percentage-based fee for open ended funds (OEICs, UTs, ICVCs) based on the asset value you hold, while charging a fixed transaction fee if you are making a trade on the stock exchange (ETFs, investment trusts, individual company shares).

There are variations on that theme e.g. some will have a lower percentage-based fee on funds, with small transaction fees on everything (e.g. AJ Bell vs HL). There are some that would charge a percentage based fee on everything  and no transaction fees (VanguardInvestor) and some that would charge fixed transaction fee on everything and no percentage-based fees (Halifax Sharedealing / IWeb). 

Most that charge transaction fees for trading on a stock exchange will give you a discount for a large number of trades per month (e.g. a fee of £10-12 per trade at AJ Bell or HL would be £5-6 if you were doing one every day) but fees of that size on a £100 transaction would be crippling (losing 5% of your money as an initial charge), and the platforms with the lowest trading fees (e.g. IWeb's standard rate is £5) don't give volume discounts. What you do find is that many brokers will let you set up monthly trading by booking in advance to trade once a month and pool your orders with others to get a lower cost per transaction (e.g. AJ Bell is £1.50 per purchase if done on the regular investing program on the 10th of every month, rather than £4.95 for a  normal ad-hoc daily investment with frequent trader discount). So if you want stock exchange transactions it's much more efficient to pool your £100s and do ~£2k a month for £1.50 fee (because that's less than £20 a year total fees) rather than £100 a day for a £5 fee (~£1250 of fees to do one trade per business day for a year)

But if you don't want stock exchange transactions and are going to use open-ended funds instead, you will find several platforms offering a pure NAV-based annual percentage fee with no transaction charges, so it wouldn't cost you any more to do £100 every business day than £500 a week, £2100 a month or £25k a year. VanguardInvestor 0.15%, Cavendishonline 0.25%, Charles Stanley Direct or Fidelity 0.35%, Hargreaves Lansdown 0.45%.  Of those, the cheapest is clearly Vanguard but they only sell Vanguard products. 

So choice of product will help to determine the platform or stockbroker of choice. But to your question on the best method being drip feeding, and the idea of doing £100 a day. Yes you are right that we don't know when the bottom will be but if you think it is going down, defer your exposure by investing 'little and often' rather than a lump sum at today's prices. But do you have £100 per day available indefinitely?  Nervousinvestor is right that we don't know how long this will take, or the shape of the recovery.

Back in 2000, the tech markets were overvalued and the dot-com bubble burst, with the NASDAQ falling 78% over about 30 months from March 2000 to October 2002. Back in autumn 2007 when the global financial crisis started to kick in, the FTSE World index dropped over 57% on a total return basis in USD by March 2009. Going in hard over the first one, two or three months doesn't help you when that timeframe is only the first 10-20% of the real timeframe of the fall. 

Of course these are extreme examples. But lets say you are sitting in the UK in September 2000 and have been watching the Nasdaq fall over the last 6 months. The UK FTSE 250 has not been falling so hard as it didn't have as much tech exposure as FTSE100 or NASDAQ, in fact it has bobbled around that year and although it lost over 10% from 6800 on the best day in January to under 6100 on the worst day of May, it since recovered to 7150 by 5 September. It gets you thinking that if only you were drip feeding daily you would have made a nice return on that fall (precipitated by the US tech boom unwinding) and benefiting from later recovery: 6800 to 7150 via 6100 is great if you are dripfeeding.  The NASDAQ is still falling and there's a variety of bad news coming out of the global economy and a week later when the index drops under 7000 again, you think "right, this is it!" and embark on a program of putting £100 per day into the FTSE250 tracker.

You are off to a good start as by March 2001, the index is under 6000. This is playing out nicely and all of your £100s have been been buying the index at lower and lower prices. Your trades at 5950 in March 2001 are at a price 17% lower than they would have been at 7150 in September 2001. "Excellent", you think to yourself, t"his 'drip feeding to buy the dip' is a great wheeze. The £12500 I've deployed over the last six months will serve me well. I'll have to give up on the daily investing now though, as I've pretty much burnt through my savings here. But I'm so glad I invested as a drip feed rather than all at once. Hopefully my last £100 today has caught the bottom".

The dotcom bubble continues to burst, followed by 9/11 and the Enron and Worldcom days  and global recession. On 13 March 2003, the FTSE250 is down to 3800.  So the bottom was 57% lower than the top. Dripping a £12k investment slowly over three months and 120 transactions didn't help you catch the bottom, as to get to the bottom you would need to keep the drip feed going for two and a half years and 600+ transactions. Imagine being £60k into your get-rich-quick scheme and the market is still going down.

Some people at that point would say "sod this, I've sunk a life changing amount of money into into trying to catch the market bottom, and it's still ticking down every day. That money could have paid off half my mortgage or bought me ten second-hand cars or holidays of a lifetime". So they cash out, taking a huge loss but getting the money back in their pocket. They feel vindicated when the market continues to fall for another month or so. Glad I got out of that s!!!show.

Then in March 2009 it bottoms out, and by December 30 2019 the index has turned 3800 into 22000 (capital value only, not counting the dividends received and reinvested).

You would still have made a decent amount of money investing £6000 in September 2000 and leaving it to now. You would have made more if you had invested £6000 spread over six months from September 2000  You would have made a lot more if you had invested £6000 spread over three years from September 2000. So if you only have (for example) £6000 to spend on your attempt to catch the bottom as part of a dripfeed, consider investing £200 per month instead of £100 per day.

stewarthenry

Thanks for all the comments.
I am intending to buy ethical funds, such as Jupiter ecology or Pictec clean energy - both of which have served me well over the years and well outperformed the market.

bowlhead99

I don't know how true it is that they both 'well outperformed the market'.

Pictet clean energy is a little ahead of its benchmark (S&P Global Clean Energy) over five years and a little behind over four. Over ten, it's well ahead of that benchmark, primarily as a result of not falling as much in 2011-2012, without being spectacular since. But really the market for clean energy is not 'the market'; the market is global investible companies, which over ten years have done much better than the 60% shown by that fund.

Likewise if you look at Jupiter Ecology against MSCI World - for the year to last Friday it's in line. For the three years to Friday it's behind by 5%. For five years, it's 15-20% behind and over ten years, its returns are 50% lower than what you would have got from the MSCI World index (just eyeballing a total returns graph rather than checking the exact percentages).

For Jupiter's Ecology fund, the latest Morningstar analyst review starts, "We think this strategy has lost its appeal as the experienced environmental lead manager has accumulated responsibilities in recent years, while losing direct support for the strategy. This increase in workload dents our conviction..."

If you have a particular set of ethics of concerns that prevent you investing in certain companies, or which result in you only wanting to invest in certain sub-sectors, then of course you should go with what you must. 

However, my earlier comments were on the assumption that when you were talking about investing £100 a day into the market in general to make the most of the opportunities in the market drops. A broad strategy is needed because it's a broad swathe of companies being hit by the concerns in the market, about global slowdown and disruption and overvaluation given potential political and economic outcomes.

If actually you are just going to invest £100 per day into your preferred niches, and ignore the broader market, keep adding for as many days as it takes for recovery (could be 500 working days to get to the bottom for all you know), good luck. But be aware that focus on one sub section of one industry (clean energy within energy) or one type of company (an ecology-led subset of the global index to the exclusion of others) can produce quite different results.

My contention would be that the two funds you're pinning your hopes on have returns that may be well below the returns available from a broader unconstrained index and so are unlikely to be the best way to catch a rebound from low market prices.

Still, perhaps they will not be falling so far as the other company types (as they haven't risen so far in the past) and some parts of the energy sector will be less geared to business and consumer activity for their income (we all need power in a recession, even if the factories are opening for fewer days a week with lower throughput).