Investment timing

Notepad_Phil

MK62 said:

Deleted_User said:

Sure. It was a hell of a lot less than yesterday.

Good to know....but what does that tell anyone about lump sum investing vs cost averaging?

The vast majority of my portfolio has come from cost averaging monthly purchases, but that's simply because I was a salaried employee and had no other choice - well I suppose I could have saved up the money and put it in as a lump sum, but then I'd have missed out on the dividends and rises in the stock market whilst I was saving up.

Nowadays I do get the occasional big lump in cash and my rationale for putting any such payments into investments as a lump sum is twofold:

1) historically markets tend to rise (otherwise why put your money in it), so by the laws of mathematics as I know them, on average, lump sum investing must be better than putting your money in via smaller sums over any period of time.

2) if cost averaging was better than lump sum investing then the 'clever' people would be taking their lumps of money out of the stock market and investing it back in via cost averaging. Now these 'clever' people may be very clever indeed and can do this without anyone else noticing what they are doing or stop others from spotting and tell us of this easy route to making more money, but I have my doubts.

Note though that I can see that some people prefer the psychology of cost averaging and that probably increases when people have only limited amounts currently in the stock market and are not used to the rises and falls of the stock market.

AnotherJoe

colmel16 said:

Looking for a general opinion on market conditions at the moment. If all your pension pot was out of the market and held as cash right now would you be more likely to wait and see where the market might go? or jump back in and ride out any corrections if there are any?

Why does it need to be in cash? If you thought "market conditions at the moment" meant you wanted to see "where the market might go*" you'd sell up now anyway.

And then you'd be like that CrashyTime guy on the housing forum who sold his house 25 years ago and is still waiting for a crash to get back in.

As you are obviously cautious, put it in in stages. Over 6 months, 12 months, 18, whatever floats your boat.

Chances are you'll be worse off but its a known fact that regret over losses is felt more keenly than regret over missed gains.

* whatever that means. And how would you know when it got there?

jamesd

colmel16 said:

Looking for a general opinion on market conditions at the moment. If all your pension pot was out of the market and held as cash right now would you be more likely to wait and see where the market might go? or jump back in and ride out any corrections if there are any?

I suggest that you read at least the first three posts of Drawdown: safe withdrawal rates and consider that more stimulus is likely from the new US President and markets usually like that. So medium term likely less good and even negative but short term looking promising.

Now pick your long term equity:bonds mix preference and adjust per Guyton's Sequence of returns risk reduction approach and invest the equity part now. With current bond markets cash is a good substitute for bonds and I have only minimal bonds. Use Guyton to decide when to increase equities.

[Deleted User]

jamesd said:

colmel16 said:

Looking for a general opinion on market conditions at the moment. If all your pension pot was out of the market and held as cash right now would you be more likely to wait and see where the market might go? or jump back in and ride out any corrections if there are any?

I suggest that you read at least the first three posts of Drawdown: safe withdrawal rates and consider that more stimulus is likely from the new US President and markets usually like that. So medium term likely less good and even negative but short term looking promising.

The $1.9tn stimulus plan isn’t exactly a secret, so its priced in.  They might end up with a smaller and more targeted stimulus which could be considered as bad news.

Thrugelmir

Deleted_User said:

jamesd said:

colmel16 said:

Looking for a general opinion on market conditions at the moment. If all your pension pot was out of the market and held as cash right now would you be more likely to wait and see where the market might go? or jump back in and ride out any corrections if there are any?

I suggest that you read at least the first three posts of Drawdown: safe withdrawal rates and consider that more stimulus is likely from the new US President and markets usually like that. So medium term likely less good and even negative but short term looking promising.

The $1.9tn stimulus plan isn’t exactly a secret, so its priced in.  They might end up with a smaller and more targeted stimulus which could be considered as bad news.

Probably why money has moved from US to emerging markets in January. 

Secret2ndAccount

Statistically, whatever amount you plan to invest, you should invest it all straight away. Markets go up over time, so being in the market is the way to benefit from that.

Reasons for investing more slowly are emotional. You would be gutted if you put all your money in today, and the market crashed tomorrow. So hold back if it makes you feel better, but realise it is likely to cost you money.

For emotional people who would like some help to behave more statistically, here is a graph published annually by JP Morgan. Invest $10,000 in the S&P 500 on 1st Jan 2000. Twenty years later, you have $32,421. Being out of the market for just 10 days could halve that amount. Yes, halve!  Pick the wrong 20 days to be out of the market, and you make nothing at all - your 10k turns into just $10,167 in twenty years. So unless you can pick which days are going to be the good and the bad ones (and nobody in history has proven that they can) it's best to get in the market.

DT2001

The majority of my SIPP went in in one hit and immediately invested. Greek Euro crisis followed a few weeks late - 8/9% down. I hoped it would come back (and it did) but consoled myself that 40% of my paper loss was HMRC’s! You have to work out how to mentally deal with fluctuations in the market.

Why would anyone’s pot be fully in cash unless they were trying to time the market or having just transferred it? The former is not a good idea as shown above and the latter can then make you think if only. If I’d kept mine in cash for 4/5 weeks and then invested as the market dipped I’d be richer. 

Remember your good luck as we all tend to dwell on the bad. I was lucky to get the bonus to fund the SIPP (right place right time), had a good IFA to minimise tax and funded my ISA’s with SAYE shares sold within 20% of the top (I know too early but so far from the subsequent fall) with a 1 share portfolio (4 times my annual gross salary).

No one knows where the market is going as everything that is known is supposedly built into the price so you have to work out what you can cope with and build a strategy around that.

colmel16

Thanks for all your responses, My pot was in cash for the short time it took to switch providers and now that is complete and i am back invested again  fingers crossed for the future.