Lump sum or trickle feed?

MartialArtMan

I have two options for depositing into a Vanguard Life Strategy 80% Equity Fund either £4800 on 1st April or £200 over the next 2 years. Which is the best option? I'm thinking the lump sum due to compound interest.....

Thrugelmir

Which VLS fund? Remember the income generated is dependent on the underlying securities continuing to pay dividends and interest. Some shares in particular the large US Corporations pay no dividends at all. 

MartialArtMan

Thrugelmir said:

Which VLS fund? Remember the income generated is dependent on the underlying securities continuing to pay dividends and interest. Some shares in particular the large US Corporations pay no dividends at all. 

Vanguard Life Strategy 80% Equity

Linton

As you say, investing the whole lump sum is best on average since prices tend to rise over time so the longer you are invested the more you will gain.  Of course that is just an average so your situation may be different.  However you wont know until after the event.

dunstonh

I have two options for depositing into a Vanguard Life Strategy 80% Equity Fund either £4800 on 1st April or £200 over the next 2 years. Which is the best option?

Nobody can answer that as it would require a crystal ball.   However, statistically, single premium beats phasing in most periods and seeing as we have just had a drop, that would seem more likely.

 I'm thinking the lump sum due to compound interest.....

There is no compound interest with VLS80

Thrugelmir

dunstonh said:

I have two options for depositing into a Vanguard Life Strategy 80% Equity Fund either £4800 on 1st April or £200 over the next 2 years. Which is the best option?

Nobody can answer that as it would require a crystal ball.   However, statistically, single premium beats phasing in most periods and seeing as we have just had a drop, that would seem more likely.

 I'm thinking the lump sum due to compound interest.....

There is no compound interest with VLS80

Reinvestment of interest and dividends forms a major part of total returns in the longer term. 

MartialArtMan

Sorry guys I'm new to this; I thought that compound interest just meant that the yearly interest is on top of the previous years interest and not just on the base amount? Am I wrong? Does the Vanguard 80 not do this? Is there a way to calculate a projected value after 20 years (I'm aware that it is only a prediction)

One of the reason I chose Vanguard was after watching Mamafurfur youtube clips and doing research online. On one of her blogs she states:
"An Investment ISA, such as using Vanguard as your Investment Platform, allows to you invest that £20k per person per year tax free but purchase Index funds, ETFs, Bonds and a huge range of other investment options.

For example, if you were able to achieve 6-8% Year on Year interest growth on your selected investment funds – within 30 years your investment would have ten times to over £10,000 without adding a single further penny to that initial investment of £1000.

Small amounts over time with the power of compound interest really do add up, when we have the will power to leave them as an investment."

eskbanker

The principle is much the same but it's a terminology issue.

If saving in cash deposit accounts, these earn interest, which can compound.

If investing in equity-based products, these will typically generate dividends, which can be reinvested, thereby achieving much the same thing, but it's not interest as such....

Thrugelmir

MartialArtMan said:

Sorry guys I'm new to this; I thought that compound interest just meant that the yearly interest is on top of the previous years interest and not just on the base amount? Am I wrong? Does the Vanguard 80 not do this? Is there a way to calculate a projected value after 20 years (I'm aware that it is only a prediction)

One of the reason I chose Vanguard was after watching Mamafurfur youtube clips and doing research online. On one of her blogs she states:
"An Investment ISA, such as using Vanguard as your Investment Platform, allows to you invest that £20k per person per year tax free but purchase Index funds, ETFs, Bonds and a huge range of other investment options.

For example, if you were able to achieve 6-8% Year on Year interest growth on your selected investment funds – within 30 years your investment would have ten times to over £10,000 without adding a single further penny to that initial investment of £1000.

Small amounts over time with the power of compound interest really do add up, when we have the will power to leave them as an investment."

Have you read through Vanguard's own website. Their guide to the options is comprehensive. Highlighting the potential risks in investing. "6-8%" sounds highly attractive in the current low interest environment. Far from guaranteed in the current crisis. Suggest you research further before jumping in. There's certainly no immediate rush to make a decision. As events have yet to unfold. 

EthicsGradient

Putting it all in as a lump sum would, on average, end up with more money, because, the average of all 2 year periods in the market does better than the average of 2 years in a savings account (and the same for 23 months, 22 months etc.). But feeding it in month by month makes the likelihood of a loss less (and that's a real possibility, right now - it's quite possible that the market could fall further yet). How much would it matter to you if you did lose something over 2 years?

sebtomato

Given how wild the stock markets are currently, and the scale of the daily fluctuations, I wouldn't consider investing a lump sum currently. I would drip feed...
People who say that, historically, it's been better to invest lump sums are not considering that what's happening now is not the norm.