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Lump sum investing versus drip-feeding

We’re often asked: Is it better to invest a big lump sum of money all at once, or to drip-feed your cash into the market?

And there happens to be an easy answer…

Statistically you’re more likely to boost your returns by going all in at once.

A Vanguard paper titled Dollar-cost Averaging Just Means Taking Risk Later found that lump sum investing beat drip-feeding around two-thirds of the time in the UK and US.

This was true across multiple decades and asset allocations – because more often than not equities and bonds trump the returns from cash.

Here’s a snapshot of Vanguard’s findings:

Lump sum investing wins in the UK, US and Australia

Many other studies have shown the same thing.

The logic is simple. Equities beat cash. Bonds beat cash. (Eventually!)

Equities and bonds are riskier asset classes than cash and investors can expect to be rewarded for bearing that risk. Historically this has come to pass. Over most time periods your investments will therefore beat your bank account.

So the sooner your money is cast into the market, the more likely it is to benefit from the greater potential of equities and bonds to grow.

Indeed, the longer you spend drip-feeding (or pound-cost averaging1), the more likely it is that you will pay for your caution as your cash returns are outshone by the fizzing fireworks of equities.

Yes but, no but…

Wait – what about that one third of the time when drip-feeding wins?

Well, you’ll be glad you chose to drip-feed if the market relentlessly falls over the course of your 12 easy installments. This way every time you buy a punnet of equities, you’re buying them at a cheaper rate than the last time.

You’ll also be glad if, in a parallel universe, you’d have been that shell-shocked investor who threw in your whole £200,000 lot at once and then watched it shrink in a bear market crash like Lake Chad in the face of a population explosion.

So the real question is not about returns. It is could you handle it if luck was against you and your inheritance or bonus or compensation payout – your one life-changing windfall – got vaporised by 50% in a matter of months?

It’s monkey in the mirror time again and drip-feed investing works because it helps prevent that person from going nuts.

I’ve been there

Many first-time investors hang around the edge of the investing pool, unable to dive in.

I know I did.

I couldn’t bear the thought of watching my maiden punt lose – even though my rational brain knew that it didn’t matter because I was committed to investing for the long term.

Every piece of bad news heightened my dithering because, well, if I waited a bit longer then maybe I could buy a little cheaper… but really I just didn’t want to see my money tank.

It was an inauspicious start for a guy who doesn’t believe you can time the markets.

Market timing is not your friend

It’s precisely because we can’t predict the markets that drip-feeding is a useful psychological tool.

We can gather all the opinions we like, check out the P/E ratios and fret about geopolitics, but that kind of rune-reading is little better than superstition. It might salve a troubled mind but it makes no difference to the outcome – which is decided by a game of chance.

Drip-feeding breaks the brain-jam because it promises to cushion risk averse investors against the (less likely) downside.

If the market moves against us early on, then at least we’re not fully exposed, and later drips will buy more shares at a cheaper price.

So drip-feeding (aka pound-cost averaging) is useful, but it’s useful as a psychological crutch, not because it’s likely to boost returns. It isn’t.

If you think drip-feeding is the best way forward for you, there are various methods to try. You might consider investing equal installments over:

  • 12 months (never longer according to maths professor Bill Jones)
  • Six months
  • Four quarters

Or else put in half now and half over the next six months.

Passive investing writer Rick Ferri also has some interesting ideas on drip-feeding techniques, including favouring pound-cost averaging if your cash heap is worth more than 20% of your current wealth.

Your bottom line

Remember, the potential difference in outcomes between lump sum investing and pound-cost averaging is the performance of the market versus cash over your drip-feeding period.

We saw that according to Vanguard’s paper, the lump sum approach wins two times out of three.

But by how much? Well:

In the United States, 12-month dollar cost averaging led to an average ending portfolio value of $2,395,824, while lump sum investing led to an average ending value of $2,450,264, or 2.3% more.

The results were similar in the United Kingdom and Australia: UK investors [who chose lump sum investing] would have ended with 2.2% more and Australian investors with 1.3% more, on average.

Personally, if I doubted my risk tolerance then I’d choose the technique that was more likely to keep me in the game, rather than stretch for 2.2% upside.

That’s because the worst outcome is panicking in the face of a bear market, selling at the bottom, and then being scared off investing for life.

Take it steady,

The Accumulator

P.S. Remember this question has nothing to do with pound cost averaging from a regular income like your monthly salary. That’s just an accident of circumstance. Your money arrives as a series of monthly lump sums, and you’ll buy more equities on the dips and less on the highs. But, as market timing is not consistently possible, you’re best off investing it as soon as you can.

  1. Or dollar-cost averaging as our US chums would have it []
{ 57 comments… add one }
  • 1 magneto September 23, 2014, 8:42 am

    Take a look at this :-
    Do valuations help with such decisions?
    Would the investor’s new funds and for that matter her rebalancing method survive the worst case, a re-run of 1929 et al?

  • 2 The Investor September 23, 2014, 9:38 am

    @magneto — We’ve written a fair bit about methods of valuing the market. PE10 / CAPE is about the best predictor there is but it’s far from perfect and its own creator (Robert Shiller) has cautioned against using it as a timing tool.

    See these articles: http://monevator.com/series/valuing-the-market/

    The big problem with CAPE isn’t that it doesn’t identify high valuations, but that it would have kept you out of the US market for most of the past 30 years (except with hindsight of course).

  • 3 JJ September 23, 2014, 10:45 am

    I’ve got a question related to this, every year when it comes to ISA allowance time I just bosh in the full amount as soon as I can in one lump sum and buy funds in accordance with my allocation. I understand, as you’ve detailed above, that the lump sum approach is more often than not the way to go from a returns point of view, but I always feel nervous that to essentially invest a lump sum on the same day every year I’m doing some weird market-timing thing. Should I be concerned? It feels like lots of other people must be buying at the same time, but maybe people aren’t as anal as me about missing tax-free-time…

  • 4 magneto September 23, 2014, 11:20 am

    Good links to past articles, many thanks, will peruse fully.
    “The big problem with CAPE isn’t that it doesn’t identify high valuations, but that it would have kept you out of the US market for most of the past 30 years (except with hindsight of course).”
    This is true if the investor is using binary decisions (in or out of stocks). A more nuanced stock allocation inversely proportional to valuations can give satisfactory, if not optimal, repeat not optimal, results.
    Q is interesting, does anyone know of a link for the UK market?
    Returning to the £CA versus lump sum, a middle course can be to move a fixed equal% of deviation from target, per month/quarter. This means funds moving at a fairly high rate at the start of the process, with the fund flow slowing as accumulation progresses. Borrows on ideas from process control, where system stability is paramoount.

  • 5 Jonny September 23, 2014, 1:24 pm

    A really useful article.

    “If I had a lump sum, you’d certainly have persuaded me to invest it all at once.

    …except the market seems quite frothy at the moment (and surely there’s a crash due). Perhaps I’d better pound cost average it instead this time. Next time though (when the market isn’t so frothy) I’ll definitely throw the entire lump sum in. Definitely next time… ”

    (an inner view of how I suspect my mind would work given a lump sum today ;-)). I certainly understand the logic. But would I follow it?

    I did find pound cost averaging a great way to get in to investing. It certainly gave me more confidence whilst I found my feet, rather than the worry of putting everything I had into that “scary stock market” all at once.

    Frustratingly I think (hope) I’d keep all my money invested in the event of a crash anyway, so it really shouldn’t put me off. Only time will tell…

  • 6 weenie September 23, 2014, 1:38 pm

    Interesting post and links – thanks. I never really thought of pound-cost average investing as being risk-adverse but of course it is, it’s the safer option.

    Unfortunately, I don’t often have a lump sum to invest (although I’m looking at how to get round this!) so it’s drip-feeding for me long-term.

  • 7 Paul Claireaux September 23, 2014, 1:48 pm

    To Magneto
    You’ve hit the nail on the head.
    System stability (of our own funds) whilst less important at the start of a long regular savings journey – is totally paramount later on when we’ve built reasonably sized funds.
    The overwhelming evidence is that markets are unstable in the medium term – and that far from following the widely used ‘Normal Distribution’ (ND) of returns they actually behave in line with a power law, rather like earthquakes – with millions of tiny movements and progressively fewer bigger ones. (Read Nassim Taleb, Mark Buchannan et al for more on this) is that markets
    The ND is a pretty much useless indicator or risk – because it assumes that some kind of average return prevails over time. It does not.
    The data clearly shows (look at Barclays equity gilt study) that markets tend to run either above or below the ‘alleged’ average rate of return over different periods.
    It’s less common for them to jog along at or around that fictitious rate.

    And that’s not really surprising, is it? After all, markets are ‘unstable’ systems because they’re driven largely by our glorious banking system’s unbridled credit creation ability – which acts either accelerator or brake at different times. (read Steve Keen for more on this)

    Crashes are not evenly distributed over time. The evidence is that crashes cluster.
    And periods of low or negative returns are not neatly spread across the years either because markets are not sensibly valued at all times.
    Of course this it at the heart of the argument between those two Nobel Prize winners Shiller and Fama.

    But look, we don’t need to delve into mathematical models to see what goes on with markets.
    The evidence is very clear – they tend to produce low (or negative) returns from high valuation points and higher return from low ones.
    That’s it!
    And where are we now?
    Well I for one do like to take a look at ‘Shiller’s’ CAPE occasionally – not because it offers any day to day precision – but because it warns of crazy hot and cold levels.
    Stick with your adjustments Mr Magneto.

  • 8 The Accumulator September 23, 2014, 2:16 pm

    @ Magneto – best I know of for P/E 10 UK: http://www.iii.co.uk/news-opinion/blogs/share-sleuth/state-market

    This piece by Michael Kitces suggests Shiller CAPE is nigh on useless in the near term but has good predictive power over 8 – 18 years. Using it to guide a lump sum vs drip-feed decision is just another psychological tool to make you feel happier about your decision:

    But this piece looks into the possibilities of adjusting equity allocations in tandem with CAPE signals. It’s no revelation but shows there could be some potential: http://www.kitces.com/blog/valuation-based-tactical-asset-allocation-in-retirement-and-the-impact-of-market-valuation-on-declining-and-rising-equity-glidepaths/

  • 9 The Accumulator September 23, 2014, 2:20 pm

    @ JJ – the article demonstrates that lump sum investing generally is the way to go from a returns p-o-v. I wouldn’t worry about being part of a hungry horde of retail investors eager to fill a new year’s ISA allowance. Most activity is dominated by institutional investors who wouldn’t scratch their nose for £15K.

    @ Jonny – I know exactly how you feel!

  • 10 allie September 23, 2014, 2:51 pm

    Jonny, yes that is how my mind is thinking……I would definitely LSI if a correction didn’t seem so likely.

    I realise most of us don’t have £100 k sitting around, but Vanguard UK unfortunately give us no choice to drip feed if we want to avoid platform fees. Maybe this should be seen as a good thing and I am sure their minimum £100k keeps their costs down, but it does seem such a high figure.

  • 11 mike September 23, 2014, 10:39 pm

    I have about half of my non-cash funds sat with an expensive wealth management company that I’m looking to move to a low cost tracker. Presumably investing the whole lot into a tracker in one go isn’t really lump sum investing, as the money is already invested. Pound cost averaging would simply mean time out of the market.

    This has been worrying me and ultimately is causing me to procrastinate on making the switch. This article has clarified alot of what’s going through my head, the emotional side of investing.

  • 12 ermine September 24, 2014, 9:08 am

    > A more nuanced stock allocation inversely proportional to valuations can give satisfactory, if not optimal, repeat not optimal, results.

    Where I use indexing I use CAPE among other things to point in the direction of favouring less favoured markets. So for now I don’t do so much US, but favour EM and have favoured Europe. There isn’t just one market and you either hold off or dive in. You can shift your aim.

    I’m not saying it’s the right way, but IMO the presumption that valuation is irrelevant at the point of purchase inherent in blind index investing seems to be contradicted when it suddenly becomes relevant for yearly rebalancing. I expect to be a net purchaser for the next 10 years so it seems reasonable to aim fire at low CAPE regions – they’ll be valued high and low in their own good time. There will be some time when the US market looks good value by CAPE in the next 10 years but that time is not now – but some markets look okay. Even our own FTSE100 isn’t anywhere near the heights of the US.

  • 13 pkora94 September 24, 2014, 12:39 pm

    Yes, talking about drip feeding, i invested in a buy as you earn scheme with tesco started 2011. i was expecting a slow steady share price with 3% div and tax advantage. since then the shares have been more volatile than a penny share!! i am getting cheaper shares every month and i will continue with tesco and buy as you earn for atleast another 5 years. if tesco sort themselves out then i suppose i have been lucky?! What do you think?

  • 14 Lee September 24, 2014, 1:06 pm

    Surely not just Tesco itself though right? You’re combining these investments with other elements of what constitute a diversified portfolio, right?

  • 15 dearieme September 24, 2014, 1:40 pm

    It’s “risk averse”, by the way. :p

  • 16 ermine September 24, 2014, 3:53 pm

    @Lee Buy as you earn sort of implies a share incentive programme and an up to 40% tax advantage. You can still be up on the deal even with Tesco if you have a tax leg-up. Well, as long as they run out of skeletons in the closet at some time 😉

  • 17 pkora94 September 24, 2014, 4:34 pm

    As ermine says, buy as you earn offers tax advantage as long as i do not sell for five years from purchase. There is no dealing charge or selling charge and no charge to hold the shares, can be transferred in to isa and can be held in a trust. Dividend reinvestment is free but it is not much of that now. A long term investment in this may come good but our staff who are comin to retirement are reeling. A recent meeting with our store director was a waste of time with him saying the lowest price shares can go is 1.50 and that is it. He thinks!!??
    I also have save as you earn as well. This is risk averse as i get my money back if the shares go below the option price.
    Lee i do own other stocks in a sipp and isa but no bonds, too young for bonds i think, got 30 years before retiring.

  • 18 weenie September 24, 2014, 6:08 pm

    “It’s “risk averse”, by the way. :p”

    Yep, my typo, which I only noticed after I’d posted, doh!

  • 19 dearieme September 24, 2014, 7:28 pm

    Oh we all do typos. And my browser does some of its own too. Artificial Unintelligence.

    Anyway, thanks for all the posts. Much appreciated.

  • 20 Jeff September 24, 2014, 8:12 pm

    1 My investment capital comes from the spare part of my monthly income. So pound cost averaging is the way to go.

    2 I would be cautious about investing lump sums if PE ratios were at values which look very high historically. Some markets are in that position (e.g. US).

  • 21 Geezer September 24, 2014, 8:17 pm

    All In Or Nothing. Enjoy the ride!

  • 22 Lee September 25, 2014, 4:33 am

    Sorry I’m not UK based so wasn’t aware of the scheme.

  • 23 Borderer September 25, 2014, 9:13 am

    Has anyone given any consideration to the fact that the Shiller PE10 calculation is highly dependent on the measure of inflation published by the Government? Given all governments record on manipulating figures, does this not, in itself, give cause for caution when using Shiller PE10 as a means of valuing markets?
    Here’s an interesting article on the subject

  • 24 Steve R September 26, 2014, 12:31 am

    I can’t quite make my mind up if this question is logically coherent but I’ll ask it anyway…

    I’m convinced going right in with a big lump will come out ahead on average. But surely it’s not purely a matter of psychology to pay attention to the worst case behaviour? Or is it, because the “worst case” goes away in the long run anyway?

    Stupid analogy, which is not helping me make my mind up: I offer you the opportunity to play a game of chance with me. We generate a random number. 99% of the time I will give you a pound, 1% of the time you have to give me £98. If I didn’t screw that up, the game has an expected profit of one pence per go. So it’s rational to play.

    But if it’s a one-shot game, the player could be hugely out of pocket and it doesn’t seem entirely unreasonable – the action of a psychologically weak monkey – to say “actually, it’s not a worthwhile gamble”. Maybe it is psychology; it just seems to me the *shape* of the payout distribution matters, to focus exclusively on the mean seems, well, shortsighted.

    On the other hand, if I can play over and over again – which is perhaps more like the situation of investing in the stock market for the long run – I will come out ahead in the long run, as long as I’ve got deep enough pockets to cover the odd £98 on the way.

    Can anyone shine any light on my confused thoughts here?

  • 25 The Investor September 26, 2014, 8:51 am

    @Steve R — I don’t think your thoughts are confused, I think you’re right. The chances are you’ll do better investing the lump sum right away, but the key word is “chances”. If that word was “the reality is” or the “certainty” is then it’d be another matter. Many investors (not you, clearly) hear “risk/reward” and just see reward. There is a risk. There’s always the chance you draw black when you bet on red. Hence the decision is down to one’s risk tolerance / capacity to live with the consequences.

    Remember, another risk is missing the upside. Let’s say you decide you’re a prudent sort, and you split your lump sum investment — you put in 50% straight away, but you elect to invest the other 50% in 12 months time.

    What if the market goes up 20% in-between?

    If that doesn’t seem like such a problem to you as losing 20%, then you’ve learned something about your risk tolerance.

    Or say you decide you will invest after a 25% decline in the index level or when the CAPE PE falls below some desirable level. What if the market goes up 50% before then?

    You could get very funky and try to assign probabilities to the curve of possibilities — the shape of distribution, as you suggest. I’d question realistically how you or I could do that with any accuracy though.

    So ultimately rules of thumb and “what can I afford to lose” are the way forward to my mind.

    e.g. If you’re 30 and saving for retirement and you inherit £100,000 and you’re earning £40,000 a year and have an after-tax and mortgage disposable income of £1,500 a year (say) then I’d invest the entire sum straight away if I was a risk taker, or invest say £30,000 straight away and £2,000 a month of the rest in I was a cautious sort. (Note: I’m pulling these numbers out of the air).

    But if I was 60 and hoped to retire at 65 and I inherited £250,000 and my pension was not looking in good shape, I’d have a different view.

    You might find these articles interesting:


  • 26 Darren September 27, 2014, 8:13 am

    A really useful article.

    Totally agree with your sentiment: “…except the market seems quite frothy at the moment (and surely there’s a crash due). Perhaps I’d better pound cost average it instead this time. Next time though (when the market isn’t so frothy) I’ll definitely throw the entire lump sum in. Definitely next time… ”

    This is me! At 48yrs old and having sold my active funds I’m sitting on a pile of cash (@£100k) but I’m frozen still with procrastination. Fear of an imminent 20% correction stops me getting back into the market and whilst I’m out, I’m worried I’m missing potential upside coming along!

    Ha! Perhaps I’m learning something about myself?

  • 27 living cheap in London September 27, 2014, 11:28 am

    Darren – can you move it into a SIPP & get the upside (20 or 40% depending on your tax code) of the tax break to soften your exposure to any downside?

  • 28 The Accumulator September 27, 2014, 2:31 pm

    @ Steve R – your example is classic psychology but you’re doing yourself a disservice, your aversion to the game is not weakness, it is human. According to Daniel Kahneman in his book Thinking Fast & Slow (which is full of fascinating experiments like the one you cited) we feel loss much more keenly than we do gain, hence the clanging alarm bells at the £98 loss in your example. It’s rational to play given the likelihood of profit but most of us are wired for caution. Generally we need much better odds than 50:5o to get in the ring, or the reward has to be astronomic in comparison to the cost – which is why we’re suckas for lotteries.

    Incidentally, the triumph of loss over gain is why negotiation is so difficult. In order to compromise a party must feel the reward is worth the pain of giving something up. But because we overweight loss, we often feel that the other party’s offer is insufficient compensation for our grand gesture.

  • 29 allie September 27, 2014, 6:34 pm

    Darren, your situation is similar to the one I find myself pondering. Given £100k, would people here LSI into Vanguard direct and save on platform or broker fees, it not being possible to drip feed less than this directly into a Vanguard fund?

    And if so, are we all going to wait for this elusive correction before jumping in?! – being only human of course.

    I do like the idea of investing directly with them…..

  • 30 The Accumulator September 28, 2014, 7:04 am

    @ Darren and Allie – drip-feeding would appear to be the way to go if you’re fearing a correction that may not come for years, or in the form you expect. If the market went down 20% tomorrow, would that get you in? How would you know it wouldn’t go down another 20% the day after? The evidence suggests remaining cash is likely to be a losing strategy over time, the rest is guesswork, drip-feeding might help break the paralysis.

  • 31 grey gym sock September 28, 2014, 11:14 am

    your biggest risk is when you have maximum exposure to equities. suppose you are early in your working life, with £50k in equities now, and you expect that to rise (as you save more from your earnings) to a peak of £500k in equities. if you now have a windfall £100k, logically you should bang your equities straight up to £150k, which will allow you to reduce your projected peak equities to less than £500k, reducing peak risk. (… however, for psychological reasons, it may be better to drip-feed. a good-enough plan that you will stick with is better than an “optimal” plan that you will abandon in a market crash.)

    OTOH, if you are later in your working life, already near your peak holdings in equities, then you could logically even choose to sell equities when you receive a £100k windfall, because that is £100k less that you now need to make from investment returns to cover your projected spending. it’s a choice: you can use extra resources either to increase your spending plans, or to reduce the risk of your plans becoming unsustainable in the event of an unusually severe bear market.

    in theory, i suspect it’s optimal to have a constant exposure to equities (in inflation-adjusted £) over as long a period as possible – e.g. to have a constant £300k in equities, instead of building up from 0 to £500k. in practice, unless you inherit most of your money, you probably have nowhere near enough capital available to do this early on. though you can get a bit nearer to it by starting out with a very high equity allocation (as a % of avaiable capital – perhaps even 100% excluding an “emergency fund”, if that works psychologically for you).

    around the point of reaching retirement, keeping equities constant is a possible strategy. your last few years’ savings from earnings could go into bonds, and your first few years’ expenditure afterwards could come from selling bonds. this is a possible alternative to the more common strategy of reducing your % in equities as your age rises.

  • 32 allie September 28, 2014, 2:46 pm

    hmmm food for thought , thanks. I hadn’t even thought of,
    “logically even choose to sell equities when you receive a £100k windfall, because that is £100k less that you now need to make from investment returns to cover your projected spending”

    I suppose I had been thinking that putting £100k direct into Vanguard would help me to keep my tampering paws off it, whereas if I drip feed in to various platform funds I am more likely to allow my emotions to mess it up.

  • 33 The Accumulator September 28, 2014, 7:20 pm

    Great post Gym Sock.

    Although I guess that sticking £100K into bonds is as psychologically challenging for most people right now as sticking it all into equities.

  • 34 oldthinker September 29, 2014, 4:45 pm

    @Steve R

    > But if it’s a one-shot game, the player could be hugely out of pocket and it doesn’t seem entirely unreasonable – the action of a psychologically weak monkey – to say “actually, it’s not a worthwhile gamble” … On the other hand, if I can play over and over again – which is perhaps more like the situation of investing in the stock market for the long run – I will come out ahead in the long run, as long as I’ve got deep enough pockets to cover the odd £98 on the way. Can anyone shine any light on my confused thoughts here?

    This is not confused at all. The ‘I will come out ahead in the long run’ argument is based on the law of large numbers. This law only applies to, well, large numbers (which is where the ‘deep enough pockets’ part comes into play); it says nothing about small numbers, so being hugely out of pocket is what one should expect when playing the one-shot game described by you. Your reasoning is entirely rational, mathematically correct and has nothing to do with psychology.

  • 35 The Accumulator September 29, 2014, 5:22 pm

    It’s got everything to do with psychology. Reverse the scenario and you have a lottery. Rationally you’re on to a loser but we love the chance of the huge win much as we abhor the chance of the huge loss – however unlikely. We overweight the probability of an unlikely event and we’ll pay to make the uncertainty go away. This is why the insurance company thrives. We’re happy to pay extra for the certainty the bad outcome won’t happen.

  • 36 oldthinker September 29, 2014, 9:40 pm

    > We overweight the probability of an unlikely event and we’ll pay to make the uncertainty go away. This is why the insurance company thrives. We’re happy to pay extra for the certainty the bad outcome won’t happen.

    When buying insurance, I am not doing this because I overweigh the probability of an unlikely event – I am doing this because I genuinely cannot afford the worst-case scenario (like incurring £1m in medical expenses while travelling abroad). However, I never insure domestic appliances. This is not psychology; this is mathematics in which I happen to have a degree. Needless to say, I do not play lottery.

  • 37 oldthinker September 29, 2014, 10:26 pm

    Just to clarify: I am not challenging the assertion that people often grossly underestimate or overestimate the probability of a certain event and that psychological factors play a role there. I am merely saying that this observation is irrelevant to the question posed by Steve R, who was apparently having a difficulty reconciling two facts about the game of chance described by him: an almost certain loss in the short run and a virtually guaranteed win in the long run. These two facts can be reconciled purely mathematically, by looking into the inner workings of the law of large numbers. As an attempt at an explanation in layman’s terms, I suggested concentrating on the word ‘large’ in the name of this law.

  • 38 The Accumulator September 30, 2014, 6:43 am

    In the short run, as described, I’m probably going to profit. The game is profitable . But the potential profit isn’t worth the possibility of comparative ruin. If i was a risk seeker then I’d take the chance of profit. However most need the odds to be far more favourable

  • 39 Rob December 15, 2014, 8:16 am

    A couple of weeks back I did just this – invested a lump sum (which was material to me, though by no means everything) in two index trackers. Investing (aside from through my work pension) is relatively new to me, having only started back in March after spending some time doing my homework and deciding on a strategy.

    I knew the logic of the above argument and that the rational approach was to invest in one go, but it still wasn’t easy for me. I reminded myself that the reason for having a clear and simple strategy was exactly for times like these and that I’d be doing myself a disservice (particularly given the number of hours I’d spent reading), if I allowed my emotions to get the better of me now.

    Two weeks later, the market has gone against me (that dreaded red in my portfolio indicating funds are worth less than I paid for them) and what did I find myself doing? – Reading articles in the press about how markets have taken a battering, how this was inevitable (yes, inevitable!) and how there’s more to come. So once again, I reminded myself of my strategy, that I don’t believe you can time markets, that I plan to hold my investments for the long term and should have no need/desire to sell them for at least 5 years, hopefully much longer. Instead, I will continue to save hard, make quarterly investments and (hopefully) look back at this episode in years to come thinking about how inexperienced I started off, but glad I stuck at it.

    I thought I’d post this message as someone who recently put the above theory into practice and who has lost in the very short term. Do I regret not spreading my investment over several months? I actually don’t. Clearly I would have preferred markets to initially have gone the other way (I’m only human), but I just think that over the long term it shouldn’t matter and that I followed my strategy, which was exactly for times like this when emotions have a tendency to blur the rational approach. Will I regret my decision in the future? Possibly, but I won’t blame myself for it. The feeling I have from executing my plan to achieve financial independence far outweighs that.

  • 40 BlackSamurai摩天楼 January 9, 2017, 2:03 pm

    So is the DCA or PCA for us in the UK meaning if i put in 200 per month instead of 600 in a quarter that i am worse off? Slightly confused as I know regular investing was something i am going to do.

  • Mogul
    41 The Accumulator January 10, 2017, 9:59 pm

    I don’t understand your question. As the post says, most of the time you’re better off getting into the market sooner rather than later, except when you’re not, approx one third of the time. Your question implies a precision and clairvoyance which nobody has.

  • 42 BlackSamurai摩天楼 January 12, 2017, 9:37 am

    Sorry about the confusion! Looking back over what I said, it doesn’t make sense to me either lol. It made sense at the time I wrote it haha. Ignore my nonsensical question! 🙂 By the way, I will be making my own blog post about my financial path – and you guys are part of the reason/inspiration why! when it goes live, I will link my name to it – please visit it and give feedback 🙂

    thanks for all the work you and the Investor do 🙂 it helps young guys like me ^^.

  • 43 Wilfred March 4, 2017, 1:40 pm

    Looks like the link to Vanguard’s paper is broken, it’s now https://personal.vanguard.com/pdf/s315.pdf

  • Mogul
    44 The Accumulator October 25, 2017, 7:02 pm

    Thank you Wilfred! Took me 7 months to update and say thank you, but we got there in the end 🙂

  • 45 maloney May 4, 2019, 1:03 pm

    @ mike. I think you’re right and I made a similar move recently with a portion of my portfolio. My thinking was that, but for special circumstances, I’dve had the money invested anyway. If the market subsequently dips, so be it.

  • 46 John Were December 5, 2019, 1:36 pm

    Thanks for the article. Great, counter-intuitive stuff. As an article suggestion, prompted by a couple of the comments and my mother’s situation, how about “How to move from an active manager to a self-managed passive portfolio”? My mother is struggling to start the change from her active manager’s SIPP, untaxsheltered a/c, and pension as she is uncomfortable with tax implications and how to draw down income. A guide would be really useful to her and I am sure others.

  • 47 W December 5, 2019, 5:31 pm

    If you really can’t decide between all in and drip feed, then hedge your hedge. 40-60% in straight away, the rest in 3 or 4 installments.

  • 48 BeardyBillionaireBloke December 5, 2019, 7:37 pm

    > I’m sitting on a pile of cash (@£100k) but I’m frozen still with procrastination. Fear of an imminent 20% correction stops me getting back into the market

    Meanwhile I think I should move £100k or £150k or so from VWRL to bonds but haven’t got round to it yet – which must mean I’m not that convinced of a sizeable correction just yet.

  • 49 Vanguardfan December 5, 2019, 9:00 pm

    I find that the best way is to automate, to reduce the number of times you make a decision. Every time you allow yourself to make the decision (again), you give yourself the opportunity to self sabotage. Another useful tool is to make a written plan. Then if you are tempted to market time, read it again.

  • 50 Moneydog December 5, 2019, 10:25 pm

    Are all those people commenting above in 2014 who were looking to “buy the dip” still waiting?

    Rick Ferri’s rule to immediately invest a windfall of less than 20% of your net worth seems sensible. Larger pots bear more consideration. Nick Maggiuli suggests an alternative to averaging in over time: you’re better off investing immediately in a more cautious stock/bond allocation than normal – even a 100% bond portfolio – versus averaging in over 24 months https://ofdollarsanddata.com/the-cost-of-waiting/

    The approach and evidence makes sense to me, but I’m curious what others make of it.

  • 51 ermine December 6, 2019, 9:31 am

    > I’m curious what others make of it.

    I like the idea. I currently have the PCLS lump sum, which is the last lump sum investment I will ever make; my investing career will end after that. Although I have invested from this into my ISA allowance I really struggle with the idea of investing the remaining amount of it, is it is parked with NS&I premium bonds at the mo.

    The markets are in a long bull run that is long in the tooth, many macro indicators are showing high risks of a downturn, valuations are high.

    So buying into something more conservative like bonds next year has a lot of attraction, because it is high time that this bull market meets its Waterloo

  • 52 The Investor December 6, 2019, 10:46 am

    The markets are in a long bull run that is long in the tooth, many macro indicators are showing high risks of a downturn, valuations are high.

    So buying into something more conservative like bonds next year has a lot of attraction, because it is high time that this bull market meets its Waterloo

    I’d be wary of this sort of thinking (as you know). Even in the US this bull market isn’t particularly ancient, and most of the early years were bouncing off a low base. Here in the UK the market has been positively stagnant!

    Also — and this isn’t a dig but for the benefit of ingenues to our own Mr Money Mustilid 😉 — the fact that you’ve been voicing similar sentiments for I’d guess four or five years now should give us pause.

    Anything could happen, starting today, of course. Bull markets don’t go on for ever.

    But equally they don’t die of old age.

    Most people who want an easier enriching life should find their best-guess risk tolerance and then try to avoid speculation, but rather run the plan. 🙂

    (Neither you or I will ever approach the markets this way, but that doesn’t make it right and the ethos of this site compels me to warn less experienced readers accordingly. 🙂 )

  • 53 The Rhino December 6, 2019, 11:01 am

    In much the same way TI called the top of the housing market by buying a property I have called the top of the equity bull-run by buying a properties worth of equities.

    A selfless act, I know, but I thought it was time I took one for the team?

    Give it a few weeks and there will be bargains galore out there 😉

    Joking aside – I read that Ferri article a while back and thought it was pretty sensible on the subject. I’m probably more around 30% rather than 20% with the latest buying spree but I just wanted to get it done and dusted so went lump-sum. I’m hoping that putting more of an income slant on things will help psychologically as/when/if capital values plummet. My other strategy is just not looking for a year or three 😉

  • 54 Marco December 6, 2019, 10:09 pm

    I’m 90 – 95% equities (not including my DB pension), age 41. I have about 900k in vanguard all world. I really don’t fear a 50% crash in the slightest, but I would find it annoying only being able to put my earned income into it so I keep a little bit of fun money to put in if the market crashes 20% or more. And who knows, maybe my premium bonds will pay out?

  • 55 HariSeldon December 7, 2019, 8:21 am

    Interesting reference to the Tesco scheme , Mrs Hari has 25+ years there and the SAYE made serious money in the early days. ( in the early year every scheme made money but in the latter years every scheme failed to break the hurdle and we took cash.

    But be wary of any saving scheme that links your investments with your employment, if Tesco does badly the shares tank and your job is at risk…

    We realised every winning Saye immediately but someone we knew had a six figure sum in Tesco and that worked out badly….

  • 56 The Hare December 7, 2019, 10:51 pm

    The first time I invested was @£400K lump sum in early 2014. It wasn’t a small sum for me. It was an inheritance and money that was going to be lived off.

    As someone said earlier, no point learning to swim if you’re going to stay at the side of the pool.

    I remember calling up HL and asking a lot of tax questions they needed to look up the answers to. You know, like which country is this fund actually based in? I didn’t want any nasty foreign tax surprises on my tax return.

  • 57 Frugalista December 20, 2019, 4:44 pm

    As per @Ermine’s post I too have a PCLS lump sum to invest. Having only just found this great site (thank you) and spent very little time looking after my S&S ISAs over many years (I have a buy and forget approach) I realize that I probably need to give those a good overhaul too. I’m paying too much in fund platform fees for a start.

    This all means I have a frightening (to me) amount of money to invest/rationalize and yet I still don’t want to go the Financial Adviser route and pay someone to do it for me……… I’ll probably drip feed.

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