SIPP lump sum or regular invest

dannybbb

haha you're right. none the wiser

masonic

A third option is to pay it all in and leave some of it in cash, and invest it later when you get your tax relief, or when you add the next tranche of money. Some SIPPs pay a reasonable interest rate on cash.

dannybbb

ah. im unfamiliar with the process so you fund the account and then filter it in to chosen funds? i was considering all of it into a diversified multi asset fund given my inexperience but didnt know you could also choose cash for some of it

masonic

dannybbb said:

ah. im unfamiliar with the process so you fund the account and then filter it in to chosen funds? i was considering all of it into a diversified multi asset fund given my inexperience but didnt know you could also choose cash for some of it

You add cash and can usually choose how much of it to use to buy investments at any time. The buying and selling of investments is separate to funding the account.

You can also expect a 6-8 week delay before tax relief is added on the low cost platforms.

spider42

If the company is making an employer contribution, then there won't be any tax relief to be recovered by the SIPP, so a 6-8 week delay wouldn't be relevant.

MX5huggy

Let’s say you’ve got £10k to put in your pension (you can as said put it in the pension then invest it over time) so option A invest all today.
option B invest £1k a month for 10 months. 

Option C wait for a fall and invest then.

stock markets on average rise so with A you have the best chance of taking advantage of that.

B as on average markets rise this month you will get X number of units next month you will get less units for £1000 on average. If there is a fall in these early months you win but if the fall comes after 9 months only the last investment goes in at the cheap price so your average unit cost is not significantly lower. 

Option C madness, prices may never be as cheap as they are today ever again you might never invest. 

dunstonh

EthicsGradient said:

dunstonh said:

dannybbb said:

there is 40k available now and mindful of getting it in before the tax year but just came across some reading that warned against lumpsums hence my question

Why would someone warn you against lump sums when it is statistically the better option most of the time?

In reality, what many company directors do it pay a base amount monthly but then top up once a year near the business year-end once they are confident of their profits and there is no call on that money. 

Because it's a one-off transaction, and it might not work out for the best. Statistically, it's better to run a roulette wheel than to hold your cash, but that doesn't mean everyone would want to do it for just one turn, with a substantial amount of their money at stake.

So, when playing the odds, you would rather go with an option that is likely to be better 25% of the time rather than 75% of the time?

Plus, once it's all phased in over the 12 months, it will be 100% invested.   If there isn't the appetite for risk doing it in one go then it suggests there wont be the appetite to have it there in 12 months or any other period thereafter.

EthicsGradient

dunstonh said:

EthicsGradient said:

dunstonh said:

dannybbb said:

there is 40k available now and mindful of getting it in before the tax year but just came across some reading that warned against lumpsums hence my question

Why would someone warn you against lump sums when it is statistically the better option most of the time?

In reality, what many company directors do it pay a base amount monthly but then top up once a year near the business year-end once they are confident of their profits and there is no call on that money. 

Because it's a one-off transaction, and it might not work out for the best. Statistically, it's better to run a roulette wheel than to hold your cash, but that doesn't mean everyone would want to do it for just one turn, with a substantial amount of their money at stake.

So, when playing the odds, you would rather go with an option that is likely to be better 25% of the time rather than 75% of the time?

Plus, once it's all phased in over the 12 months, it will be 100% invested.   If there isn't the appetite for risk doing it in one go then it suggests there wont be the appetite to have it there in 12 months or any other period thereafter.

Yes, that is how many (most?) people think; this is, for instance, why some people buy bonds, or keep more than emergency amounts of money in interest-bearing accounts. There has been a lot of research into risk in investing; it's not always about "do whatever gives the highest likely return, regardless of risk". In practice, we also see that market falls can be sudden, whereas rises tend to be steadier over a longer period. People don't like the thought of being the guy who put it all in at the highest price just before the crash.

I disagree about the "it suggests" bit - by spreading the time of investment, you have achieved a form of diversification. It's similar to not withdrawing all your money from the market in one go - the risk is spread.

Ivkoto

Some decent stuff here ⬇️

https://youtu.be/lMYflVzok30?si=2zHCzPNOXtuWt0NH

dunstonh

Yes, that is how many (most?) people think; this is, for instance, why some people buy bonds, or keep more than emergency amounts of money in interest-bearing accounts. There has been a lot of research into risk in investing; it's not always about "do whatever gives the highest likely return, regardless of risk". In practice, we also see that market falls can be sudden, whereas rises tend to be steadier over a longer period. People don't like the thought of being the guy who put it all in at the highest price just before the crash.

In over 30 years, hardly anyone has done it that way.     It comes up occasionally but when you are looking at being invested for 30-50 odd years, then is up to 12 months at the start really going to make any difference?

During that time, there are going to be many crashes.   So, best get used to it.

Plus, not being the guy that put it all in at the highest point could still be you if you phase.  e.g. if the market increases over year 1, you have bought less units that if you had bought in one go.    Then in month 13 there is a crash.    Those that phased over the 12 months will have a lower balance than those that did not phase.

Psychologically, I understand it.  But when you look at it logically with very long-term investing, it doesn't make sense and with long term investing where there are annual contributions, it really doesn't make much difference in the scheme of things.