2 year investment journey so far, trying not to feel disheartened.

masonic

SneakySpectator said:
I think that's the most overlooked benefit of averaging into the market, it basically halves the duration of any bear market, assuming you keep buying each month. It won't be exactly half but it will dramatically decrease the duration. 

While this is true when you start investing just before a market crash, the effect does diminish over time. For example, if you have 19 years worth of contributions going into a bear market and keep buying for a year as markets fall, then you have only averaged down with 1/20th of your capital and will still feel the effect of 97.5% of the market fall. As compared with if you'd only been investing for a month and would only personally been exposed to 50% of it. For the veteran investor, they may well need the market to recover most of the way for them to be back to where they were before the drop.

masonic

Cus said:

Thanks again, I wasn't trying to understand the maths of behaviour, just probabilities of historic future returns based on starting points/stock price movements. Of course after 25 years it will be likely be higher than today, but but how much is surely impacted by the amount of falls, and the timing of those falls. It appears much more complex and that the often stated mantra of 'price drops are good if you are a regular buyer.' appears to me as a not mathematically proven based on historical data.
As for the probability wrong way round, interesting, as your comment suggests that piling in when the market is in freefall, or selling when the stock market is rising steeply could be seen as best not avoided.  That may sound daft, again, well known sayings need mthematical explanations otherwise they are just sayings to me.
Edit to add: I agree that continued regular investment is the best method, but I don't understand why one should be pleased that the price drops before you contribute, as that suggests you should be sad if prices rise before a contribution, which goes against the mantra of continuing investing is best.  All seems a bit fluffy 

You know what they say about statistics! These topics have been the subject of many a PhD thesis, and at least one Nobel prize has been awarded in relation to a fluffy theory. When you look at the statistical analyses, the R-squared values for the relationships tend to be in the 0.3-0.5 ball-park, with most of the variation not being attributable to the variables under consideration. But fluffy relationships and rules of thumb are enough to give one a slight edge over the average market participant if you can remain disciplined.

Regarding my comment implying it would be good to pile in when the market is in free-fall, or sell when the stock market is rising steeply, doesn't that remind you of the Warren Buffett quote that it's wise “to be fearful when others are greedy and to be greedy only when others are fearful"? The problem is of course that it's almost impossible to get right in practice.

Hoenir

Cus said:

dunstonh said:

SneakySpectator said:

I've been investing for 2 years now, I started off with £500 just to test the waters and then a lump sum and then pound cost averaged in each month, then did another lump sum recently during the tariff crash so the chart looks a bit distorted but here's my progress so far. 

I was up like 26% or so at one point before the tariff crash and now I'm back down to 9.20%. I'm trying not to let it affect me and just focusing on the long term average as I will be going at this for about 20 - 25 years longer.

Despite having like 16.8% less return than before, my portfolio is literally at all time highs so I guess I should look at it that way right?

You should be cheering about the drop. It's great news for regular contributions and nothing to be disheartened about at all.  You want more drops.     

However, your investment behaviour is your greatest risk.   This is the mildest stockmarket crash in the last 30 or so years.   Yet you are concerned.     Stock market crashes occur around every 1 in 4/5 years.    So, none of this should surprise you when they happen.  If you react to them in the wrong way, you can create the real losses.

Why are drops great news for regular contributions? It may bring down your average price, but surely the likelihood that the price will get back to a previous high at X date in the future is less if it has dropped than if it hadn't dropped.  Can anyone explain the maths as to why people always say that drops are good....

Markets always end up overvalued /over priced at a point in time. Providing you've sufficient runway ahead to recover the ground then there's no issue. Worth remembering also that reinvestment of income / dividends does much of the heavy lifting and produces the compounding of returns over the decades. 

SneakySpectator

Hoenir said:

Cus said:

dunstonh said:

SneakySpectator said:

I've been investing for 2 years now, I started off with £500 just to test the waters and then a lump sum and then pound cost averaged in each month, then did another lump sum recently during the tariff crash so the chart looks a bit distorted but here's my progress so far. 

I was up like 26% or so at one point before the tariff crash and now I'm back down to 9.20%. I'm trying not to let it affect me and just focusing on the long term average as I will be going at this for about 20 - 25 years longer.

Despite having like 16.8% less return than before, my portfolio is literally at all time highs so I guess I should look at it that way right?

You should be cheering about the drop. It's great news for regular contributions and nothing to be disheartened about at all.  You want more drops.     

However, your investment behaviour is your greatest risk.   This is the mildest stockmarket crash in the last 30 or so years.   Yet you are concerned.     Stock market crashes occur around every 1 in 4/5 years.    So, none of this should surprise you when they happen.  If you react to them in the wrong way, you can create the real losses.

Why are drops great news for regular contributions? It may bring down your average price, but surely the likelihood that the price will get back to a previous high at X date in the future is less if it has dropped than if it hadn't dropped.  Can anyone explain the maths as to why people always say that drops are good....

Markets always end up overvalued /over priced at a point in time.

Sure, but nobody actually knows when this is, so it's completely pointless to try and time it or hold off on investing because you think it's over valued. 

HedgehogRulez

But there is a general trend over time that markets go up. Otherwise investors wouldn’t … invest in them.
That is why it is advantageous to buy when they are experiencing a short term fall.

Hoenir

SneakySpectator said:

Hoenir said:

Cus said:

dunstonh said:

SneakySpectator said:

I've been investing for 2 years now, I started off with £500 just to test the waters and then a lump sum and then pound cost averaged in each month, then did another lump sum recently during the tariff crash so the chart looks a bit distorted but here's my progress so far. 

I was up like 26% or so at one point before the tariff crash and now I'm back down to 9.20%. I'm trying not to let it affect me and just focusing on the long term average as I will be going at this for about 20 - 25 years longer.

Despite having like 16.8% less return than before, my portfolio is literally at all time highs so I guess I should look at it that way right?

You should be cheering about the drop. It's great news for regular contributions and nothing to be disheartened about at all.  You want more drops.     

However, your investment behaviour is your greatest risk.   This is the mildest stockmarket crash in the last 30 or so years.   Yet you are concerned.     Stock market crashes occur around every 1 in 4/5 years.    So, none of this should surprise you when they happen.  If you react to them in the wrong way, you can create the real losses.

Why are drops great news for regular contributions? It may bring down your average price, but surely the likelihood that the price will get back to a previous high at X date in the future is less if it has dropped than if it hadn't dropped.  Can anyone explain the maths as to why people always say that drops are good....

Markets always end up overvalued /over priced at a point in time.

Sure, but nobody actually knows when this is, so it's completely pointless to try and time it or hold off on investing because you think it's over valued. 

Completely pointless thinking is how people lose money in the stock markets. Markets don't operate in a different universe to the real world. All boils down to maths eventually.