I know they say don’t try to time the market but…..

CompoundQueen25

is now possibly a really bad time to start investing and do a lump sum investment? All I keep hearing are how overvalued US stocks are and a correction is coming. It’s making me really nervous about doing a lump sum at a really bad time. My time horizon is about 10 years and I am planning to go mainly all in on a global index tracker. I know the research suggests lump sum wins 2/3s of the time but it’s so hard to ignore how volatile everything is atm. Perhaps I could take a hybrid approach and 50% lump sum and DCA the rest over 6 months? Just don’t know what to do for the best! 

El_Torro

For what it's worth I signed up to this forum over 11 years ago and I don't think a year has gone by when people haven't said that global stocks are overvalued. I don't see anything now that makes me pay more attention to these warnings than I did before.

If you're especially concerned about US stocks there are ways to reduce your exposure to the US. I wouldn't recommend ignoring the US altogether though. If you want to stagger your investments too that's probably better than not investing at all.

CompoundQueen25

El_Torro said:

For what it's worth I signed up to this forum over 11 years ago and I don't think a year has gone by when people haven't said that global stocks are overvalued. I don't see anything now that makes me pay more attention to these warnings than I did before.

If you're especially concerned about US stocks there are ways to reduce your exposure to the US. I wouldn't recommend ignoring the US altogether though. If you want to stagger your investments too that's probably better than not investing at all.

Thanks! My sensible non emotional side 100% agrees with this, I think I just need to block out the noise and bite the bullet! I would feel much less anxious if it wasn’t for my lump, c.150k. A nice problem to have but I have worked so hard to accumulate this and just don’t want to mess it up! 

GeoffTF

CompoundQueen25 said:

Perhaps I could take a hybrid approach and 50% lump sum and DCA the rest over 6 months?

If you do that the market might wait 6 months and then crash. Why why you think the market will be safer in 6 months time? If you go 100% equities, you could be facing a loss after 10 years and could even be wiped out. If you cannot take that, include a percentage of bonds.

El_Torro

Another thing to consider: Do you really want to be 100% in equities? Over a 10 year period it will probably give you a better result than going into a 60/40 multi asset fund (or whatever). However there is a lot ot be said for peace of mind, reducing volatility might help you sleep at night. 

ColdIron

CompoundQueen25 said:

Perhaps I could take a hybrid approach and 50% lump sum and DCA the rest over 6 months? Just don’t know what to do for the best! 

One of the advantages of DCA is mostly psychological but it's an important one. If that makes you sleep better then that's what you should do. Obvs. it could go either way

CompoundQueen25

GeoffTF said:

CompoundQueen25 said:

Perhaps I could take a hybrid approach and 50% lump sum and DCA the rest over 6 months?

If you do that the market might wait 6 months and then crash. Why why you think the market will be safer in 6 months time? If you go 100% equities, you could be facing a loss after 10 years and could even be wiped out. If you cannot take that, include a percentage of bonds.

I am trying to prioritise growth and I am keeping 25% back in cash for now until I’ve got my head round bonds and other defensive investments. I feel I still have a lot to learn on that side. Not sure if this is totally correct, but in the covid crash, didn’t bonds also tank? Are they still as reliable to de-risk as they once were? 

CompoundQueen25

El_Torro said:

Another thing to consider: Do you really want to be 100% in equities? Over a 10 year period it will probably give you a better result than going into a 60/40 multi asset fund (or whatever). However there is a lot ot be said for peace of mind, reducing volatility might help you sleep at night. 

Thanks, I have given this a lot of thought and plan to keep some cash back for now until I figure out which safer asset to invest the rest in. I did look at a HSBC multi fund but just didn’t like the idea that I can’t adjust things myself so have landed on the HSBC FTSE All World Index Fund and might add a small% in a small cap fund. I will probably do 80-90% in that and invest the remaining cash once I have figured out the best “safe” option. I’m guessing a mix of govt and corporate bonds, maybe an ETF for ease? Maybe some gold? It’s a lot to consider as a new investor! 

dunstonh

All I keep hearing are how overvalued US stocks are and a correction is coming.

Are they overvalued?   Remove the tech companies, which distort things, and you get a different picture.

The bigger fear with US equities as a UK investor (in Sterling) is it Trump succeeds in devaluing the dollar.   Year to date, UK investors in US equities have had lower returns because of the exchange rate.   However, Trump is believed to want more devaluation.  That will continue to hurt UK investors unless they currency hedge.

For US investors, the S&P500 is up 9.95% YTD.  For UK investors, it is up 2.01% percent.  All because of the exchange rate movements, which have seen sterling gain 8.19% on the dollar.   

The big fear to UK investors should be if US equities drop and the dollar drops..    A 30% drop in US equities combined with a 20% drop in the dollar and you have halved your money.     

Sterling fell significantly post 2016 and that made US equities appear much better for UK investors (its also why trackers did so much better than most managed funds in that period).   Going forward, the cycle could be moving the other way (and historically, they have cycled and you can clearly see that looking backwards but you never know when it is going to change.).

10 years medium term and 100% equities for a 10 year period is high risk.
If we take market cap investing in 10-year periods measured monthly since 1915, the worst nominal annualised return was -1%, the median 10% and max 25%.  Cumulatively, that is -9%, 163% and 838% respectively.  (the best coming after the severe events of the late 60s and early 70s - March 1975 to Feb 1985).

aroominyork

Bonds fell because interest rates went up. You should read about the inverse correlation between interest rates and bonds prices, then apply it to 2022 until you understand what happened. 

Bonds were offering low returns when interest rates were very low. Some people described this as 'return-free risk' because they gave low returns but if interest rates rose (not that anyone knew when that might happen) their prices would drop. 

At today's higher interest rates bonds are once again playing their traditional role as a useful source of safety and diversification.

dunstonh

Bonds fell because interest rates went up. You should read about the inverse correlation between interest rates and bonds prices, then apply it to 2022 until you understand what happened. 

And bonds had their worst period in over 100 years at point (Oct 2021 to Sept 2022) due to that perfect storm of rising interest rates, rising inflation and quantitative tightening following over a decade of quantitative easing, record low interest rates and low inflation.   It all had to unwind at some point but most expected it to be slower.  However, Russia sped the whole thing up.