Vanguard S&S ISA dripfeed vs. lumpsum

RockTheShack
RockTheShack Posts: 23 Forumite
Combo Breaker First Anniversary
in ISAs & tax-free savings
Hi,

I have a 5% regular saver with £3k about to mature that I plan to reinvest in a S&S ISA for >10yrs.

Vanguard lifestrategy 60 or 80 seems like the most suitable option. Just wondering if there are any advantages / disadvantages to investing the full lump sum or investing £500-1k now and then drip feeding a smaller monthly sum over the course of 1-2 years?

I'm new to investing (please be gentle if i'm asking a stupid question here) and comfortable with risks involved, but I wondered if spreading the investment over the course of the upcoming year is a sensible approach in the event of a *major* brexit related downturn so close to when I want to invest or should I take the attitude that whatever happens with the markets, in the long term the timings of the initial investment will be fairly irrelevant and I should just invest the full amount now and forget about it?

TIA

Comments

  • masonic
    masonic Posts: 23,270 Forumite
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    Investing the full lump sum is on average most likely to lead to the best outcome, but carries a risk of a more substantial loss in the early years. As markets have corrected recently, you aren't investing at a high point, whether it goes up or down from here is close to 50:50, but the likelihood of a loss over 10 or more years is low.

    If you intend to add to this investment over the years, then you'll be drip feeding anyway, so putting in the £3k now vs drip feeding it is not likely to make much difference.
  • dunstonh
    dunstonh Posts: 116,358 Forumite
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    Statistically, phasing of investing results in lower returns in the majority of cases. However, you are not going to know in advance whether phasing or full investment is going to be best.
    I wondered if spreading the investment over the course of the upcoming year is a sensible approach in the event of a *major* brexit related downturn so close to when I want to invest

    What makes you think Brexit is much of an issue in a multi-asset fund?
    What makes you think that Brexit is actually a bad thing when it comes to investing?
    Why are you not considering all the other things that are having or may have a far greater impact than Brexit?
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • ryannnking
    ryannnking Posts: 45 Forumite
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    Historically, lump-sum investing offers better returns. Vanguard made an article on this comparing lump-sum investing vs DCA, the basis being the market goes 'up' more than it goes down:
    https://www.vanguardinvestor.co.uk/articles/latest-thoughts/how-it-works/what-is-pound-cost-averaging

    However, lump-sum investing requires an element of 'timing the market', which no one can do.

    Whereas, with DCA you, buy all the way up and all the way down, so you should have a lower cost basis. By DCAing you take the emotion out of investing too, which people struggle with, by setting up a monthly pay in plan of say £500 for example.

    Due to the volatile nature of the current market, it seems better to DCA in at the moment. Then lump-sum when the market pulls back/corrects. In this way you are still investing monthly, if this bull market continues for another X amount of years, so you're making gains. But if there was a significant correction or crash, you wont be completely burnt. Just my opinion, but of course everyone thinks differently!

    Ryan
  • dunstonh
    dunstonh Posts: 116,358 Forumite
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    However, lump-sum investing requires an element of 'timing the market', which no one can do.

    Phasing is also timing the market if you apply the same principle. One is timing it to go in at the start. The other is timing it over a period on the expectation that the markets are going to fall.
    Due to the volatile nature of the current market, it seems better to DCA in at the moment.

    "current market" is more like the norm. The lower volatility of the last few years is not the norm.

    As the markets fell over 15%, it could equally be argued that now is not the time to phase as the bulk of the drop may have already occured. Or it could just be at the half way point.....

    There is no way to tell in advance.

    If you cannot handle the volatility of the risk level you have chosen then go to a lower volatility level. Dont use phasing as a way to try and reduce it as you will soon have another loss period in the future and if you cant handle it at the start, you wont be able to handle it in 2 years or whatever time.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • masonic
    masonic Posts: 23,270 Forumite
    Photogenic Name Dropper First Post First Anniversary
    ryannnking wrote: »
    However, lump-sum investing requires an element of 'timing the market', which no one can do.

    Whereas, with DCA you, buy all the way up and all the way down, so you should have a lower cost basis. By DCAing you take the emotion out of investing too, which people struggle with, by setting up a monthly pay in plan of say £500 for example.
    When you have a lump sum, then doing anything other than investing it immediately is timing the market. Phasing, DCAing, or 'waiting for the next crash' is by its very nature market timing because you are saying to yourself, "now might not be the best time to invest this money, so I'm going to do something different".

    The obvious exception is when people invest from income and their income is drip fed to them. These people invest the money as soon as they can, but inadvertently DCA.
  • RockTheShack
    RockTheShack Posts: 23 Forumite
    Combo Breaker First Anniversary
    Thanks for all your replies, the benefits of either approach make sense, lots to think over but looking forward to starting to invest.
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