Inheritance

Mr._H_2

eskbanker said:

Mr._H_2 said:

In terms of “traditional” investing - no one has a crystal ball and no one knows for sure what will happen in the future. However, we are in a bear market at the moment and the general trajectory in the near term is probably downwards. In this scenario drip-feeding would do better than sticking in a lump sum all in one go. If you do decide to invest however, don’t try to “time the market” i.e. try to guess where the exact “bottom” is - you’ll end up being an accidental trader rather than investor and more likely to lose money and waste your time.

Basing investment behaviour on a perception that "the general trajectory in the near term is probably downwards" is also trying to time the market - it's easily justifiable to commit to either lump sum or drip-feeding as one's adopted investment policy, but anything involving choosing based on a belief about short-term direction is pretty much the definition of trying to time the market....

I would have to concede that that is strictly speaking correct. But I believe that when people refer to "timing the market", they are usually referring to "all in" and "all out" type strategies where you attempt to take everything out at the top of the market and then put it all back at the bottom, which tends to work out extremely poorly as a strategy if you try to implement it over a lifetime of "investing".

However, I really meant in a "balance of probabilities" it is more likely that drip feeding will deliver higher returns than putting in a lump sum, and (historically) can only be beaten if lump sums are invested at exactly the right moment each year. [edit: I stand corrected, see NoMore's post below] It is true however, that if we are talking about a single lump sum of money that is invested now and then not touched for twenty years, that investing the whole lump sum now vs. divvying it up and investing it over the next 12 months, the difference in outcome at the end of the twenty years is likely to be fairly small.

eskbanker

Mr._H_2 said:

However, I really meant in a "balance of probabilities" it is more likely that drip feeding will deliver higher returns than putting in a lump sum, and (historically) can only be beaten if lump sums are invested at exactly the right moment each year.

That's not my understanding, although I've never gone looking for the research that endorses the prevailing opposite view that those with lump sums should get them fully invested as soon as possible, on the basis that over the long term on average markets will rise more than they'll fall.

Albermarle

However, we are in a bear market at the moment and the general trajectory in the near term is probably downwards. 

Considering the significant improvement in stock markets ( and bonds to a lesser extent) in the last 6 weeks, pluswhat appears to be some more positive mood music recently about markets generally, I would think some continued upturn is quite possible.
However this is just idle speculation, and I would not base any investment decisions on the likelihood of markets going up or down in the short term. 

Mr._H_2

eskbanker said:

Mr._H_2 said:

However, I really meant in a "balance of probabilities" it is more likely that drip feeding will deliver higher returns than putting in a lump sum, and (historically) can only be beaten if lump sums are invested at exactly the right moment each year.

That's not my understanding, although I've never gone looking for the research that endorses the prevailing opposite view that those with lump sums should get them fully invested as soon as possible, on the basis that over the long term on average markets will rise more than they'll fall.

Admittedly the only comparisons I've seen are "invest lump sum at worst possible moment (top of market)" vs. "invest lump sum at best possible moment (bottom of market)", vs. "dollar-cost average", investing one lump sum per year, for the lump-sum strategies. Obviously lump sum at best possible moment is the best, but it's quite enlightening how worst possible moment doesn't work out that badly, as long as the investment horizon is at least 20 years. So, yes, if we pick a random moment in time, perhaps the difference in DCA vs "lump sum immediately" favours the latter.

Could there be a psychological benefit to DCA for those who haven't invested before? If you DCA and the first movement is downwards, you can think "at least I didn't put it all in in one go", and you are less likely to panic and alter strategy. Would be interesting to know if anyone has studied this from this angle.

Mr._H_2

Mr._H_2 said:

Could there be a psychological benefit to DCA for those who haven't invested before? If you DCA and the first movement is downwards, you can think "at least I didn't put it all in in one go", and you are less likely to panic and alter strategy. Would be interesting to know if anyone has studied this from this angle.

Gary1984 said:

On average the outcome would be better to just dump it all in. The advantage of drip feeding it, especially if you see yourself as risk adverse, is that you are less likely to panic if the investments tank in the very short term if you've only committed a smaller portion of your money.

Sorry Gary; hadn't seen your post!

Albermarle

Mr._H_2 said:

eskbanker said:

Mr._H_2 said:

However, I really meant in a "balance of probabilities" it is more likely that drip feeding will deliver higher returns than putting in a lump sum, and (historically) can only be beaten if lump sums are invested at exactly the right moment each year.

That's not my understanding, although I've never gone looking for the research that endorses the prevailing opposite view that those with lump sums should get them fully invested as soon as possible, on the basis that over the long term on average markets will rise more than they'll fall.

Admittedly the only comparisons I've seen are "invest lump sum at worst possible moment (top of market)" vs. "invest lump sum at best possible moment (bottom of market)", vs. "dollar-cost average", investing one lump sum per year, for the lump-sum strategies. Obviously lump sum at best possible moment is the best, but it's quite enlightening how worst possible moment doesn't work out that badly, as long as the investment horizon is at least 20 years. So, yes, if we pick a random moment in time, perhaps the difference in DCA vs "lump sum immediately" favours the latter.

Could there be a psychological benefit to DCA for those who haven't invested before? If you DCA and the first movement is downwards, you can think "at least I didn't put it all in in one go", and you are less likely to panic and alter strategy. Would be interesting to know if anyone has studied this from this angle.

On average it is better to 'lump sum' but I can not recall what the % statistical advantage is, although I have seen it mentioned on here before.

The psychological/emotional advantage of DCA is clear though, and not only for first time investors. However the main problem for first time investors, is investing above their risk tolerance and withdrawing when markets drop sharply. This can happen with lump sum or DCA contributions.

NoMore

Albermarle said:

On average it is better to 'lump sum' but I can not recall what the % statistical advantage is, although I have seen it mentioned on here before.

Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf (twentyoverten.com)

Vanguard research says it's about 2/3 of time better to lump sum.

granddaughter1980s

OK so I think the general consensus seems to be lump sum, which I'm fine with as the idea with at least some of this money is to just dump it somewhere and not look at it for 20 years and hope that when I do look at it it's not less than what it is now (which, to be brutally honest, is my main fear - having never done this before but learned a lot about the Wall Street Crash at school and having watched the Big Short).

Now I have further utterly naive questions...

1. Better to put it all in one pot or pop it in a couple of different options if the plan is to leave it for a while?
2. If we assume, as one poster put it, around 40-60k, if I put 20k in an ISA for easy access (found one at 4.5% for 5 years, allowing for short term panic), 20k in some kind of basic index fund and 20k in some kind of pension does that sound sensible or should I just put all of it in one place? I believe the term 'diversification' comes up a lot in the youtube videos I've been frantically watching so just wondering about how best to go about it.

And glad Albermarle brought up the psychological aspect of all of this - the main Vanguard page had performances over the last few years and even though only this year was negative it still made me panic a little. I think it's just because it's all a bit new but the idea of 100k not being worth 100k in 25 years time has put it all in a different light for me which is super helpful!

Albermarle

 If we assume, as one poster put it, around 40-60k, if I put 20k in an ISA for easy access (found one at 4.5% for 5 years, allowing for short term panic), 20k in some kind of basic index fund and 20k in some kind of pension does that sound sensible or should I just put all of it in one place? I believe the term 'diversification' 

Normally an easy access savings account means you have instant ( or only a delay of a day or two) access to the money. A 5 year fixed term account is NOT easy access.

Diversification can mean a few things but in terms of investing, it generally means not just buying shares in just one or two companies, or not just be 100% invested in one country, or having a mixture of equity (shares) and bonds. The more diverse/spread out your investments, then if one part of it goes wrong, it only has a small effect. Having a mixture of cash savings and investments is also a form of diversification.

Investing in stocks for beginners: how to get started - MSE (moneysavingexpert.com)

This article is about investing within a S&S ISA, but the principles are the same whether you use an ISA or not.

How to invest in a stocks and shares Isa: The quick and easy guide | This is Money

to just dump it somewhere and not look at it for 20 years and hope that when I do look at it it's not less than what it is now (which, to be brutally honest, is my main fear - having never done this before but learned a lot about the Wall Street Crash at school 

I do not think there has ever been a 20 year period when markets went down. Even after disastrous events like the Wall Street crash, the markets did recover eventually. Even after 10 years you would have to be very unlucky to be seeing a loss.

Mr._H_2

Albermarle said:

I do not think there has ever been a 20 year period when markets went down. Even after disastrous events like the Wall Street crash, the markets did recover eventually. Even after 10 years you would have to be very unlucky to be seeing a loss.

Japan?

OP still hasn't given information about their existing mortgage.