I've had confusing pension advice - help!

Albermarle

kempiejon said:

Lufeplanner44 said:

Hi All,

I wonder if you can help.  I have had two advisors state different opinions, and I could do with some clarity.

In simple terms, is it better to pay £320 a month into my pension each month for the next 10 years, or is it better to put £38,400 (the equiilent amount over the 10 years) in straight away and then no more.  Which would likely perform the best?

Thanks,

Surely it depends where we invest it. In a cash-like account with very low risk all in always wins barring catastrophe. Depending on market risk investing at the start or staggered changes all possible outcomes. Statistically all-in beats monthly drips but some outliers will see poorer returns; who'd want to be them? So drip monthly looks like a hedge.
The tax environment might change over the next decade such that the relief claimable might not be the same for future contributions, ditto drawing.

There is also a half way house of investing say 40% straight away, then 30% in 6 months and final  30% in another 6 months.
So you get fully invested quite quickly but gets over that nervousness of going all in ( to some extent anyway).

leosayer

Bobziz said:

dunstonh said:

leosayer said:

From an investment perspective, according to a study of historical data by Vanguard, "Lump-sum investing beats cost averaging about two-thirds of the time.".

I guess they would say that but the evidence is clear.

https://www.vanguard.co.uk/professional/vanguard-365/financial-planning/financial-well-being/cost-averaging

There have been many studies from different sources covering different timescales, and they all fall within the same ballpark, which is typically 65-85% of the time, single beats phased.

And studies also suggests that those times where cost averaging has beaten lump-sump investing is during bear or volatile markets. They also suggest that the extent of cash drag plays a role too, i.e. the return that you're getting on your cash whilst you wait. 

Are we in a volatile or bear market ? No, but the forward p/e of the s&p has only ever been higher once. Precious metal prices are through the roof and money market funds are still paying an inflation beating return. Personally I'd sleep better at night in the current climate by pound cost averaging. 

Predicting / timing the market is generally inadvisable but the fact that 35-15% of the time, cost averaging works out better AND it helps you sleep at night makes it the best strategy for most due to the emotional aspects.

I still feel the scars of filling 4 ISA allowances with global equity funds in early 2007 which took many many years to recover.

Moonwolf

In general it is a microcosm of investment. More risk could give bigger returns or bigger losses.

Lump sum is higher risk with potentially higher returns or bigger losses.

Regular payments dampens both the big returns and the big losses.

If you have a long time until retirement, need higher returns and think the market will probably perform well in the future then lump sum could be the answer.

If a more median return will probably be enough, you think there will be more armed conflict like Russia/Ukraine, US tariff policy or an AI bubble will hit the market in 0-5 years then regular payments might be better.

Also your own attitude to risk, I know people who would feel sick after a big loss and people who would shrug their shoulders and look for another big risk to take to recover those losses.

Albermarle

Also your own attitude to risk, I know people who would feel sick after a big loss and people who would shrug their shoulders and look for another big risk to take to recover those losses.

Research shows that in many areas of life, including investing, that most people get more angst from a loss, than they get joy from a gain.
Normally referred to as - Loss aversion. It seems to be hard wired into people from primitive times, although a minority seem to be less affected.

Baldytyke88

Lufeplanner44 said:

I wonder if you can help.  I have had two advisors state different opinions, and I could do with some clarity.

In simple terms, is it better to pay £320 a month into my pension each month for the next 10 years, or is it better to put £38,400 (the equiilent amount over the 10 years) in straight away and then no more.  Which would likely perform the best?

Aside from the pension tax relief, is the money invested going from a high-interest savings account into a pension account invested in the stock market?

HedgehogRulez

Given markets will be decimated in Q1 2026 I’d wait til the dust has settled around Summer

Baldytyke88

HedgehogRulez said:

Given markets will be decimated in Q1 2026 I’d wait til the dust has settled around Summer

I haven't seen a 2026 predictions thread, oil price rise due to Trump in Venezuela?

Secret2ndAccount

Baldytyke88 said:

I haven't seen a 2026 predictions thread, oil price rise due to Trump in Venezuela?

Trump's moving to Venezuela?!?  Now that's a prediction. "Mi amaigos, wi gonna ha da best oil prices ever. The highest you've ever seen. Like never before. Now that Madman Maduro is out. Nasty Nick. Best oil prices ever."

Marcon

HedgehogRulez said:

Given markets will be decimated in Q1 2026 I’d wait til the dust has settled around Summer

...and you know all this for certain how...? Do share!