I think personally I'd go for a combination of both. Invest half of the money immediatly and use the rest to average into the market. This is because I wouldn't be able to stomach a large drop without having some dry powder left. Thanks for the informative video!
Hi, I liked your study, but have one suggestion. The comparison of outcomes would have been even more interesting if somehow the PE ratio at the market at the time of initiating the investment was considered. I think considering market valuation as a factor, should have addressed another key factor on how the different strategy outcome would have been influenced. This is exactly what you also pointed out in the early part of the video. Thx …
Thanks for this video it's been really helpful. When it comes to money advice clear level headed advice is what's needed no drama no gimmicks. Keep up the good work :)
Markets tend to go up which might seem to favour lump sum investing . But there's often a lot of side-a-ways movement in that gradual uplift. So it's best to choose a great company and buy its shares in quarterly or half-yearly blocks which should keep the costs down .
I had a lump sum back in summer 2017 and have been drip feeding it into the market, now 12 months later im still only 66% invested with 33% in cash. Stock markets are currently at All time highs, and while I did buy some of the dips from February this year it wasn't enough. Back in February I wasnt sure if it was going to keep falling or not. As of today both the SP500 and UK FTSE100/250 are at all time highs and I just cant bring myself to invest the remaining 33% cash at these levels. Theres so much talk of "this bull run is 10 years old surely there is a crash soon" and this makes me fearful to invest today. Ultimately I think the question is impossible to answer. Lump sum investing has been the better choice for all of recorded history BUT theres no garauntee it will be for the future. Ramin how comfortable would you be investing 33% at current all time highs?
Hi kindke, I'd ignore the level of markets (e.g. S&P price is 2837) and focus instead on valuations i.e. price relative to earnings (Shiller Price to Earnings is 33, price to traliing 12 month earnings is 25 as you can see on www.multpl.com/). Also, the age of the bull run is pretty irrelevant, it could carry on for another decade if earnings continue rising at the current rate. Earnings for the S&P 500 have grown at about 4% over the last 140 years and the price of the S&P always snaps back to about 16 times earnings. Since March 2017 earnings have been growing at around 20% which is unsustainable. A "fair" price based on Shiller's CAPE for the S&P given current earnings is about 1500, half its current value. To answer your question I have lump sum invested my ISA this year but, like you, I went for a lowish risk 60% bond portfolio. This is how I did it: pensioncraft.com/how-i-invested-20k/ Give me a call if you want to have a quick chat. My details are here: pensioncraft.com/contact Thanks, Ramin.
Bonds? Jack Bogle says a 65/35 equity bonds ratio is generally healthy to counter the stock market extreme swings, 50:50 if equities look overvalued, 40:60 if you're really nervous. Right now I'm at 50:50 because even though I'm 24 and don't expect to retire until at least 40, I am still nervous. Ramin has a video up explaining how to invest during Brexit (pensioncraft.com/how-to-invest-during-brexit/). I have my bonds split up like this (this is all Vanguard) - 10% Inflation linked gilts 15% UK Short Term Investment Term Bonds 5% VEMT, Emerging Markets Government Bonds 5% USD 1-3 year corporate bonds 5% global short term corporate bonds 10% global short term bonds Relax, just because the market and valuations are high doesn't imply a CRASH. The market can stay high for a long time, earnings just have to catch up is all. Don't not buy because you're fearing a crash (although the Shiller PE chart is a bit scary! www.multpl.com/shiller-pe/), think about the total return over the 5 years, the next decade. Yes, it will have to be lower than the historical average but that doesn't make it super likely that you're gonna be fucked over in that time period. Maybe invest that last 33% a bit slower, look at the Vanguard Factor funds (ruclips.net/video/U0wnrUIgwVM/видео.html), maybe put some in P2P lending (Funding Circle have a £50 Amazon gift card referral scheme going on right now, Ratesetter pay a referrer £50 and new customers £100 after 12 months, Zopa pay £50 each to a referee and referrer), look at National Savings & Investments paying 1.95% for a 3 year bond (www.nsandi.com/our-products), FSCS backed 5 year bonds paying 2.7% (www.moneysavingexpert.com/savings/savings-accounts-best-interest/#fiveyearfixed), consider checking out other ways of making it make money like playing around with bank accounts (www.moneysavingexpert.com/banking/).
i don't think the market will crash but i think a major pull back may happen this year but what ever the outcome this year i will be starting my investment before the year is out and will be doing it aggressively as i plan to be i it for about 10 years+
@@tc9634 what do you thinkif I go 100% equities? I have no money in the stock market now and I consider a Total market index like VEQT Vanguard. Am I too crazy for not really wanting bonds? The bonds don't really attract me so much, I am 36. Thx sir!
Hi, do you have to lump sum every year or just as a 1 off payment? For example £500 lump sum in a life strategy fund initial investment. Do you then have to invest £500 each year ? Or just that one off payment?
This was informative indeed. Thank you for your effort. I assume you didn't take into account inflation eating away at the money kept for 10 years. The problem with investing is and probably will always remain that it's impossible to know the future beforehand so anything we do is a gamble, be it calculated (based on past data) or a wild guess. Which is why diversification is so important: cover your bases and make sure you aren't wiped out completely. Many people are predicting a recession in 2020: would that be a factor which should influence this decision now in your opinion? What do you think about splitting the difference: investing half now and the other half gradually?
Hi I Glad, that's certainly true over the long term however if there's a market crash just after you deposit a large amount you may be better off drip feeding. As I say in the video, Vanguard found that lump sum is better than drip feeding two thirds of the time because markets tend to drift upwards over the long-term. Thanks, Ramin.
A bit of a late comment, but does this take into account holding your money in a tax-free trading account (ISA in the UK, Roth IRA in the USA) that offers interest on cash? For example, in the UK, we have a cash ISA where your cash is held in banks and thus protected up to £85,000 via the FSCS, where you can earn interest. Interest rates differ per broker, but Trading212 offers a 5.2% interest rate that is divided and paid daily (5.2/365 x Cash amount). So, would it be better to have the lump sum amount in that cash ISA and drip feed it every month into the stock market?
Really interesting video, thanks. The stats are clear and make sense however I would like to see how the 2 options would look if you layered over the top what the shillers cape was at the decision point. ie at the time you had a lump sum to invest, if the shillers cape was very high, like now, would history say drip feeding would be a better strategy on average?
Have you seen these Barclays Shiller Indices? shiller.barclays.com/SM/12/en/indices/list.app;searchTerm=shiller They haven't been around long enough to judge how well they work but it'll be interesting to see if CAPE does provide a useful signal for sector investment. Thanks, Ramin.
Id be interested to see a comparison between periods of overvaluation. Say look at historical examples of when the S&P has had a P/E of over 20, and then go through the same scenarios. I wouldnt be surprised if dollar cost averaging beats out lump sum in this example.
The problem is how to define/recognise "overvaluation". If a market's trend line could always be mapped to a straight line then yes, but 3:44 shows that it isn't a straight line. The growth rate over the 150 years shown on that graph demonstrates changes in the acceleration rate. This, for example, means that at the time, the 1950s would appear to be overvaluation, as they were above the previous trend line, but not investing at that point and waiting for the market correction would have meant you would still be holding on to your cash even now, as the markets carried on going up. 2008 is clearly visible on the graph and even that catastrophic even doesn't stop the upward trend line. Markets always recover. Stick your money in and ride out the storms unless you have a crystal ball.
Would you say investing a lump sum (around 80k) into lifestrategy 100 would best served by initially investing into lifestrategy 20 and then systematicly driping it into the 100 over a 12 month period or just go straight into the 100 with no drip feeding?
I'd say there's additional risks as well. Let's say you want to invest a big lump sum ($500k), but you have to save up for it for many months. Then not only are you missing out on gains if the market is bullish, but you also risk that after investing your sum the market crashes, and you need to stay disciplined saving up for that sum and not spend any of it.
Dear Ramin, I am curious as to how you obtained the probabilities for a positive return over, e.g., 50 years. At 3:50. Afaik there was no 30 year period where stocks underperformed inflation in the US. Did you use simulations? Thanks
Hi gcgrabodan this was based on Robert Shiller's data which is publicly available www.econ.yale.edu/~shiller/data.htm There was a long period after WWI where the 30y return was negative, then it happened again following the Great Depression. Thanks, Ramin.
At a time like now, I would definitely like to see how most of those graphs change when you take into account periods of similar equities valuation instead of all periods. My gut tells me it becomes more of a toss up than 66% of the time lump sum wins, but hard data would be better.
So when equities are on high valuations and are more likely to crash, you drip feed. When equities are on low valuations, so more likely to rise, you invest via lump sum? That seems sensible to me. Shame I am not a quant so can’t prove your hypothesis.
There is nothing wrong with taking a hybrid approach. I will never criticize anyone who looks at the risks of LSI and decides a on a lower-risk DCA approach. Having said that, if you are paralyzed by the fear of a significant LSI then it probably means that your portfolio is too aggressively positioned and you need to reconsider your asset allocation.
Hi Van Dieu those are all good points and I agree with you. Some people I've spoken too are also spooked about bond markets given low yields so they are scared to buy _anything_ For them a drip feed approach is the only way to put their toe in the water. Thanks, Ramin.
Yes, it is truly inspiring. I hate all the how-to-become-a-millionaire articles and videos. But perhaps its worth mentioning this in future using Reed's story as an example. It's good to have a goal.
Hi Money Unshackled, that's an interesting idea. The trouble is knowing when the correction's over. Sometimes markets stabilise for a while then take another leg downwards. The difficulty faced by many people at the moment is knowing how long this bull run continues. Several of the people I speak to are getting nervous and starting by drip-feeding, but there's no reason why the US rally couldn't run for a few more years. Thanks, Ramin.
@@Pensioncraft I'm not suggesting that you time the market by aiming for the lowest price. We all know that is impossible. But by only investing after a 10% correction, what sort of returns would we have earned? Perhaps you could analyse the returns of investing whenever it drops. If it drops a further 10% then invest again.
Hi Murari, you're right if you invest as a lump sum transaction costs will be lower. The larger the amount you're investing the less transaction costs matter. This is because transaction costs are a fixed amount (say £10 per trade) and as a percentage of the invested amount this shrinks with larger investments. Vanguard used total return indices for their comparison so they took positive carry (reinvestment compounding) for stocks into account. Also, the rate of return for cash is currently near zero but I remember when I was a small boy that it reached 12% so this might be something to consider in future too and would benefit drip feed investing. Thanks, Ramin.
Yes Ramin... one doesn't have to be a small boy to remember double digit interest rates during Paul Volker and Maggie T's time. Let alone the spike at the time of ERM exit (John Major).
Yes you're right: www.bankofengland.co.uk/boeapps/iadb/Repo.asp and the rate since 1694 is here docs.google.com/spreadsheets/d/1OKo38R1blO71SGNIVuhaRZ4P2GYPpJQklmOymQiXixQ/edit?hl=en&hl=en#gid=1 which shows how abnormal the current rate environment is in a very long context.
For most of us this doesn't matter. We're drip feeding every time we get a paycheck most of the time. On those rare occasions where we do have a lump sump, we should just buy. We can't know if the market will rise or fall after our purchase, but we do know that cash will lose value. Also, if you're paying transaction costs, drip feeding is a less efficient way to get your money into the market.
Hi Colin, you're right this dilemma only affects people who have a lump sum to invest. Usually, it's better to invest the lump sum straight away but sometimes it's not e.g. before a crash. Unfortunately, it's nigh impossible to predict when a crash is imminent. Thanks, Ramin.
If you'd have invested £1 million at the peak, what would the value be today? 2/3 lost over the (relatively) short term, but would it have returned? Genuine question.
Interesting! I just watched this and concluded that I'll drip-feed over a year, according to my asset allocation. What in particular from this video made you want to invest a lump sum instead?
@@nataliehargrave2605 At the time of writing his comment the markets had a huge crash, so it would make sense to invest the lump sum then. I’ve now got a predicament. I’ve a significant lump sum, I’m considering whether to split the total sum to invest 50:50 into a market allocation in one fund of 60% equites to 40% bonds whilst drip feeding a separate fund with an 80% equities to 20% bond allocation over a year with the remaining amount, to try and hedge my bets against an upturn or downturn in 2021, due to the current situation we’re in. Just wondering if I’m still too exposed to equities with this plan. What’s your thoughts? I’d be interested in hearing Ramin’s opinion, too?
So... basically drip-feed is like a dampener either way. Well I don't have a lump sum I'm just trying to put away £1,000 a month and this video has reassured me that if my investments do well, I'm already doing all I can to exploit that, and if they fall, then by just carrying on investing in a balanced portfolio I should do better than someone with a lump sum in equity during the falling period, and as the market comes out of the dip, I will a good cost-average base on which to enjoy the returns to come... I just wanna get the next crash over with!
Hi Tim that’s right. Drip feeding underperforms lump sum investing in a rising market and outperforms in a falling market. Unfortunately we don’t know which we’re going to get so you have to use your own judgement. But most of the time lump sum is best. And if you’re drip feeding anyway by saving regularly it does mean you buy more when investments are cheap and less when they’re expensive. Thanks, Ramin
To summarise: The markets have risen over time for over a hundred years with peaks and troughs along the way. So "immediate" investment gets your money into this generally rising market at the earliest opportunity. The other method is for people who predict the market and everyone says you can't predict the market. Why are people even debating what the best approach is? It's bloomin' obvious.
If you expect a crash then why not invest the lump sum into bonds, and after the crash move into equities? This could be done by drip feeding into equities and then as a lump sum when the market bottoms and starts recovering.
You could drip feed into a Vanguard ISA using ETFs then transfer large chunks into a Hargreaves Lansdown ISA as they cap the 0.45% platform fee at £45 pa but have high transaction costs.
I am sorry .. from medical eyes and brain.. I couldn't understand this figures.. Which one gives better returns? Drip feed or the lumpsum.. Sorry for asking when the answer is probably very clearly explained.. It is simply that I couldn't understand
Hi J S, if you think markets are about to rise strongly then lump sum. If you think we're about to crash then drip feed. Because markets tend to drift upwards long-term lump sum wins about two thirds of the time so if you don't want to guess what markets are about to do then lump sum is best. If you want a call to discuss this then I'm just a click away ramin.as.me Thanks, Ramin.
Hi quit the rat race! financial independence the purpose of the video was to show that the answer is not clear-cut and that sometimes drip-feeding is better than lump sum when markets fall sharply. Usually lump sum investing is better (2/3 of the time). Thanks, Ramin.
Hi Dean and quit the race! financial independence here's the blog article pensioncraft.com/lump-sum-drip-feed-investing-which-is-best/ Which figures do you think are incorrect? Thanks, Ramin.
@@Pensioncraft hes trying to say that the 1 million grew for those 3 years 16% each year which would make it above 1.5millon before the 60% crash that came within your chart/timeframe example
Hi x x I don't usually see them but I googled and I see what you mean. "Here I am in front of my Lambo..." Not a good look in my book, but at least you can skip the video in five seconds. Thanks, Ramin.
![Chino Pacas - Modo Capone (with Drake & Fuerza Regida) [Video Oficial]](http://i.ytimg.com/vi/zjv8TQ0gBkg/mqdefault.jpg)
Such a great video! I love how academic your content are! High quality and well researched. Thank you!
Thank you for your comments Planum
I think personally I'd go for a combination of both. Invest half of the money immediatly and use the rest to average into the market.
This is because I wouldn't be able to stomach a large drop without having some dry powder left.
Thanks for the informative video!
Hi Jonathan, if you're cautious that would be a good strategy to dip your toe in the water before you ease into the pool. Thanks, Ramin.
Hi, I liked your study, but have one suggestion. The comparison of outcomes would have been even more interesting if somehow the PE ratio at the market at the time of initiating the investment was considered. I think considering market valuation as a factor, should have addressed another key factor on how the different strategy outcome would have been influenced. This is exactly what you also pointed out in the early part of the video. Thx …
I always get excited when I see you've uploaded a new video. Thank you for making such interesting and insightful videos.
Well, that's made my day. Thank you Henry.
Subscribed!! This is super helpful, clear, and informative ❤ Thank you so much ❤️🙏🏻
Thanks for subbing! @dsuthapong
This is really helpful to me at the moment, Ramin. Thank you.
I was asking myself this very question today. Cheers!
Glad to help! @kevinu.k.7042
I’m so glad I found this channel. It’s super interesting!
Glad you enjoy it!
Thanks for this video it's been really helpful. When it comes to money advice clear level headed advice is what's needed no drama no gimmicks. Keep up the good work :)
So glad it was helpful David C
Markets tend to go up which might seem to favour lump sum investing .
But there's often a lot of side-a-ways movement in that gradual uplift.
So it's best to choose a great company and buy its shares in quarterly or half-yearly blocks which should keep the costs down .
I had a lump sum back in summer 2017 and have been drip feeding it into the market,
now 12 months later im still only 66% invested with 33% in cash.
Stock markets are currently at All time highs, and while I did buy some of the dips from February this year it wasn't enough. Back in February I wasnt sure if it was going to keep falling or not.
As of today both the SP500 and UK FTSE100/250 are at all time highs and I just cant bring myself to invest the remaining 33% cash at these levels. Theres so much talk of "this bull run is 10 years old surely there is a crash soon" and this makes me fearful to invest today.
Ultimately I think the question is impossible to answer. Lump sum investing has been the better choice for all of recorded history BUT theres no garauntee it will be for the future.
Ramin how comfortable would you be investing 33% at current all time highs?
Hi kindke, I'd ignore the level of markets (e.g. S&P price is 2837) and focus instead on valuations i.e. price relative to earnings (Shiller Price to Earnings is 33, price to traliing 12 month earnings is 25 as you can see on www.multpl.com/). Also, the age of the bull run is pretty irrelevant, it could carry on for another decade if earnings continue rising at the current rate. Earnings for the S&P 500 have grown at about 4% over the last 140 years and the price of the S&P always snaps back to about 16 times earnings. Since March 2017 earnings have been growing at around 20% which is unsustainable. A "fair" price based on Shiller's CAPE for the S&P given current earnings is about 1500, half its current value. To answer your question I have lump sum invested my ISA this year but, like you, I went for a lowish risk 60% bond portfolio. This is how I did it: pensioncraft.com/how-i-invested-20k/ Give me a call if you want to have a quick chat. My details are here: pensioncraft.com/contact Thanks, Ramin.
Bonds? Jack Bogle says a 65/35 equity bonds ratio is generally healthy to counter the stock market extreme swings, 50:50 if equities look overvalued, 40:60 if you're really nervous. Right now I'm at 50:50 because even though I'm 24 and don't expect to retire until at least 40, I am still nervous. Ramin has a video up explaining how to invest during Brexit (pensioncraft.com/how-to-invest-during-brexit/). I have my bonds split up like this (this is all Vanguard) -
10% Inflation linked gilts
15% UK Short Term Investment Term Bonds
5% VEMT, Emerging Markets Government Bonds
5% USD 1-3 year corporate bonds
5% global short term corporate bonds
10% global short term bonds
Relax, just because the market and valuations are high doesn't imply a CRASH. The market can stay high for a long time, earnings just have to catch up is all. Don't not buy because you're fearing a crash (although the Shiller PE chart is a bit scary! www.multpl.com/shiller-pe/), think about the total return over the 5 years, the next decade. Yes, it will have to be lower than the historical average but that doesn't make it super likely that you're gonna be fucked over in that time period. Maybe invest that last 33% a bit slower, look at the Vanguard Factor funds (ruclips.net/video/U0wnrUIgwVM/видео.html), maybe put some in P2P lending (Funding Circle have a £50 Amazon gift card referral scheme going on right now, Ratesetter pay a referrer £50 and new customers £100 after 12 months, Zopa pay £50 each to a referee and referrer), look at National Savings & Investments paying 1.95% for a 3 year bond (www.nsandi.com/our-products), FSCS backed 5 year bonds paying 2.7% (www.moneysavingexpert.com/savings/savings-accounts-best-interest/#fiveyearfixed), consider checking out other ways of making it make money like playing around with bank accounts (www.moneysavingexpert.com/banking/).
i don't think the market will crash but i think a major pull back may happen this year but what ever the outcome this year i will be starting my investment before the year is out and will be doing it aggressively as i plan to be i it for about 10 years+
@@tc9634 what do you thinkif I go 100% equities? I have no money in the stock market now and I consider a Total market index like VEQT Vanguard. Am I too crazy for not really wanting bonds? The bonds don't really attract me so much, I am 36. Thx sir!
Im in the same situation right now.... ie drip feed or lump sum a large value, what did you do after posting this?
7:35 it's important to clarify -- by ~2% greater you mean over a 10 year period, not 2% more annualized return... right?
Thanks for the interesting video. No gimmicks, music or stupid graphics, just useful information.
Glad you liked it Londonfogey .
I am currently drip feeding money into LifeStrategy100 and injecting lump sums during big market dips, I hope this continues to work out for me
Hi, do you have to lump sum every year or just as a 1 off payment? For example £500 lump sum in a life strategy fund initial investment. Do you then have to invest £500 each year ? Or just that one off payment?
I’m doing the same. £1500 a month drip feed and a lump sum received by bonus end of year is invested.
This was informative indeed. Thank you for your effort. I assume you didn't take into account inflation eating away at the money kept for 10 years.
The problem with investing is and probably will always remain that it's impossible to know the future beforehand so anything we do is a gamble, be it calculated (based on past data) or a wild guess. Which is why diversification is so important: cover your bases and make sure you aren't wiped out completely.
Many people are predicting a recession in 2020: would that be a factor which should influence this decision now in your opinion?
What do you think about splitting the difference: investing half now and the other half gradually?
as long as you are in the market, then you are winning than not being in it.
Hi I Glad, that's certainly true over the long term however if there's a market crash just after you deposit a large amount you may be better off drip feeding. As I say in the video, Vanguard found that lump sum is better than drip feeding two thirds of the time because markets tend to drift upwards over the long-term. Thanks, Ramin.
That was chuffin' brilliant . I'm a lot more informed now
Thank you @Musheo Peaus I am glad you found it helpful
A bit of a late comment, but does this take into account holding your money in a tax-free trading account (ISA in the UK, Roth IRA in the USA) that offers interest on cash? For example, in the UK, we have a cash ISA where your cash is held in banks and thus protected up to £85,000 via the FSCS, where you can earn interest. Interest rates differ per broker, but Trading212 offers a 5.2% interest rate that is divided and paid daily (5.2/365 x Cash amount). So, would it be better to have the lump sum amount in that cash ISA and drip feed it every month into the stock market?
Brilliant topic with great insight. Thanks
Thank you, Abdi.
Really interesting video, thanks. The stats are clear and make sense however I would like to see how the 2 options would look if you layered over the top what the shillers cape was at the decision point. ie at the time you had a lump sum to invest, if the shillers cape was very high, like now, would history say drip feeding would be a better strategy on average?
Have you seen these Barclays Shiller Indices? shiller.barclays.com/SM/12/en/indices/list.app;searchTerm=shiller They haven't been around long enough to judge how well they work but it'll be interesting to see if CAPE does provide a useful signal for sector investment. Thanks, Ramin.
Id be interested to see a comparison between periods of overvaluation. Say look at historical examples of when the S&P has had a P/E of over 20, and then go through the same scenarios. I wouldnt be surprised if dollar cost averaging beats out lump sum in this example.
The problem is how to define/recognise "overvaluation". If a market's trend line could always be mapped to a straight line then yes, but 3:44 shows that it isn't a straight line. The growth rate over the 150 years shown on that graph demonstrates changes in the acceleration rate. This, for example, means that at the time, the 1950s would appear to be overvaluation, as they were above the previous trend line, but not investing at that point and waiting for the market correction would have meant you would still be holding on to your cash even now, as the markets carried on going up. 2008 is clearly visible on the graph and even that catastrophic even doesn't stop the upward trend line. Markets always recover. Stick your money in and ride out the storms unless you have a crystal ball.
Would you say investing a lump sum (around 80k) into lifestrategy 100 would best served by initially investing into lifestrategy 20 and then systematicly driping it into the 100 over a 12 month period or just go straight into the 100 with no drip feeding?
I'm quickly approaching this decision regarding how to approach the market with a lump sum 😬
I'd say there's additional risks as well. Let's say you want to invest a big lump sum ($500k), but you have to save up for it for many months. Then not only are you missing out on gains if the market is bullish, but you also risk that after investing your sum the market crashes, and you need to stay disciplined saving up for that sum and not spend any of it.
Great channel,thanks for sharing
Thanks 28 Sure, I'm glad you find it helpful, Ramin
Great video, thanks!
Hi m amartin, thank you! Ramin.
Your videos are really helpfully! Very clearly explained, subscribed!
That's great thank you Sam!
Thanks so much! Very helpful
My pleasure, i'm pleased you found it useful. Thanks Ramin
Dear Ramin,
I am curious as to how you obtained the probabilities for a positive return over, e.g., 50 years. At 3:50. Afaik there was no 30 year period where stocks underperformed inflation in the US. Did you use simulations?
Thanks
Hi gcgrabodan this was based on Robert Shiller's data which is publicly available www.econ.yale.edu/~shiller/data.htm There was a long period after WWI where the 30y return was negative, then it happened again following the Great Depression. Thanks, Ramin.
Good video.
I like your style.
Thank you Raj Singh. Much appreciated
At a time like now, I would definitely like to see how most of those graphs change when you take into account periods of similar equities valuation instead of all periods. My gut tells me it becomes more of a toss up than 66% of the time lump sum wins, but hard data would be better.
So when equities are on high valuations and are more likely to crash, you drip feed. When equities are on low valuations, so more likely to rise, you invest via lump sum? That seems sensible to me. Shame I am not a quant so can’t prove your hypothesis.
I like this vid.. Good insight.
There is nothing wrong with taking a hybrid approach. I will never criticize anyone who looks at the risks of LSI and decides a on a lower-risk DCA approach. Having said that, if you are paralyzed by the fear of a significant LSI then it probably means that your portfolio is too aggressively positioned and you need to reconsider your asset allocation.
Hi Van Dieu those are all good points and I agree with you. Some people I've spoken too are also spooked about bond markets given low yields so they are scared to buy _anything_ For them a drip feed approach is the only way to put their toe in the water. Thanks, Ramin.
I think Ronald Reed drip fed his investments and done extremely well.
PensionCraft that's it Ramin, I thought it was an inspiring story for any regular person like myself.
Yes, it is truly inspiring. I hate all the how-to-become-a-millionaire articles and videos. But perhaps its worth mentioning this in future using Reed's story as an example. It's good to have a goal.
This is very surprising. It would be interesting to see the result if you only invested after a correction. Easy enough to do if you're patient
Hi Money Unshackled, that's an interesting idea. The trouble is knowing when the correction's over. Sometimes markets stabilise for a while then take another leg downwards. The difficulty faced by many people at the moment is knowing how long this bull run continues. Several of the people I speak to are getting nervous and starting by drip-feeding, but there's no reason why the US rally couldn't run for a few more years. Thanks, Ramin.
@@Pensioncraft I'm not suggesting that you time the market by aiming for the lowest price. We all know that is impossible. But by only investing after a 10% correction, what sort of returns would we have earned? Perhaps you could analyse the returns of investing whenever it drops. If it drops a further 10% then invest again.
Hi Money Unshackled, that does sound interesting. Another variation might be to condition on volatility. Thanks, Ramin.
There may also be transaction cost advantages to LSI? And dividends reinvestment compounding, which makes the case for LSI?
Hi Murari, you're right if you invest as a lump sum transaction costs will be lower. The larger the amount you're investing the less transaction costs matter. This is because transaction costs are a fixed amount (say £10 per trade) and as a percentage of the invested amount this shrinks with larger investments. Vanguard used total return indices for their comparison so they took positive carry (reinvestment compounding) for stocks into account. Also, the rate of return for cash is currently near zero but I remember when I was a small boy that it reached 12% so this might be something to consider in future too and would benefit drip feed investing. Thanks, Ramin.
Yes Ramin... one doesn't have to be a small boy to remember double digit interest rates during Paul Volker and Maggie T's time. Let alone the spike at the time of ERM exit (John Major).
Yes you're right: www.bankofengland.co.uk/boeapps/iadb/Repo.asp and the rate since 1694 is here docs.google.com/spreadsheets/d/1OKo38R1blO71SGNIVuhaRZ4P2GYPpJQklmOymQiXixQ/edit?hl=en&hl=en#gid=1 which shows how abnormal the current rate environment is in a very long context.
For most of us this doesn't matter. We're drip feeding every time we get a paycheck most of the time. On those rare occasions where we do have a lump sump, we should just buy. We can't know if the market will rise or fall after our purchase, but we do know that cash will lose value. Also, if you're paying transaction costs, drip feeding is a less efficient way to get your money into the market.
Hi Colin, you're right this dilemma only affects people who have a lump sum to invest. Usually, it's better to invest the lump sum straight away but sometimes it's not e.g. before a crash. Unfortunately, it's nigh impossible to predict when a crash is imminent. Thanks, Ramin.
If you'd have invested £1 million at the peak, what would the value be today? 2/3 lost over the (relatively) short term, but would it have returned? Genuine question.
Hi Edward, a lot of equity indices are currently at their peak (in November 2019). So they haven't had a chance to rise yet! Thanks, Ramin.
This is very useful for me right now! Time to invest a lump sum!
Interesting! I just watched this and concluded that I'll drip-feed over a year, according to my asset allocation. What in particular from this video made you want to invest a lump sum instead?
@@nataliehargrave2605
At the time of writing his comment the markets had a huge crash, so it would make sense to invest the lump sum then.
I’ve now got a predicament. I’ve a significant lump sum, I’m considering whether to split the total sum to invest 50:50 into a market allocation in one fund of 60% equites to 40% bonds whilst drip feeding a separate fund with an 80% equities to 20% bond allocation over a year with the remaining amount, to try and hedge my bets against an upturn or downturn in 2021, due to the current situation we’re in.
Just wondering if I’m still too exposed to equities with this plan. What’s your thoughts? I’d be interested in hearing Ramin’s opinion, too?
So... basically drip-feed is like a dampener either way. Well I don't have a lump sum I'm just trying to put away £1,000 a month and this video has reassured me that if my investments do well, I'm already doing all I can to exploit that, and if they fall, then by just carrying on investing in a balanced portfolio I should do better than someone with a lump sum in equity during the falling period, and as the market comes out of the dip, I will a good cost-average base on which to enjoy the returns to come...
I just wanna get the next crash over with!
Hi Tim that’s right. Drip feeding underperforms lump sum investing in a rising market and outperforms in a falling market. Unfortunately we don’t know which we’re going to get so you have to use your own judgement. But most of the time lump sum is best. And if you’re drip feeding anyway by saving regularly it does mean you buy more when investments are cheap and less when they’re expensive. Thanks, Ramin
To summarise: The markets have risen over time for over a hundred years with peaks and troughs along the way. So "immediate" investment gets your money into this generally rising market at the earliest opportunity. The other method is for people who predict the market and everyone says you can't predict the market. Why are people even debating what the best approach is? It's bloomin' obvious.
Good vid
Thanks Mysk! Ramin
If you expect a crash then why not invest the lump sum into bonds, and after the crash move into equities? This could be done by drip feeding into equities and then as a lump sum when the market bottoms and starts recovering.
Maybe now you can see why it's not that simple! :D
If you drip feed into an ETF wouldn’t the transaction costs become an issue?
Vanguard has low transaction fees, but a 0.15% platform fee so it depends on how large the lump sum is.
You could drip feed into a Vanguard ISA using ETFs then transfer large chunks into a Hargreaves Lansdown ISA as they cap the 0.45% platform fee at £45 pa but have high transaction costs.
Super
Hi Nubian Ra, thanks, Ramin.
I am sorry .. from medical eyes and brain.. I couldn't understand this figures.. Which one gives better returns? Drip feed or the lumpsum.. Sorry for asking when the answer is probably very clearly explained.. It is simply that I couldn't understand
Hi J S, if you think markets are about to rise strongly then lump sum. If you think we're about to crash then drip feed. Because markets tend to drift upwards long-term lump sum wins about two thirds of the time so if you don't want to guess what markets are about to do then lump sum is best. If you want a call to discuss this then I'm just a click away ramin.as.me Thanks, Ramin.
if you invested a $million over 3 years and made 16% each year you would not be down to $400,000 if you lost 60%
Hi quit the rat race! financial independence the purpose of the video was to show that the answer is not clear-cut and that sometimes drip-feeding is better than lump sum when markets fall sharply. Usually lump sum investing is better (2/3 of the time). Thanks, Ramin.
PensionCraft I think $200,000 is a bit more than a minor detail to overlook
Hi Dean and quit the race! financial independence here's the blog article pensioncraft.com/lump-sum-drip-feed-investing-which-is-best/ Which figures do you think are incorrect? Thanks, Ramin.
@@Pensioncraft hes trying to say that the 1 million grew for those 3 years 16% each year which would make it above 1.5millon before the 60% crash that came within your chart/timeframe example
The question is actualized these days in 2022....
Now do an 8 year analysis on Bitcoin with this :D
Like the wife says “stick it all in”
Who needs a financial adviser when U got vids like this on RUclips .
Someone's stealing their lunch !
So in conclusion .... It’s pot luck when and how you invest.
I’m about to give up on RUclips because of these constant annoying Alex Becker ads
Hi x x I don't usually see them but I googled and I see what you mean. "Here I am in front of my Lambo..." Not a good look in my book, but at least you can skip the video in five seconds. Thanks, Ramin.
İ dont understand, how come you ask for support, with this kind of knowledge you have? You must be loaded already.
Hi mujdo1, Thanks for your comment and i'll take that as a compliment but unfortunately i am far from loaded! Cheers Ramin