Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

DCA passive investment. Should I start with a lump sum or DCA my initial investment too?

Index tracking funds and ETFs
timski
Posts: 3
Joined: March 27th, 2021, 11:07 am

DCA passive investment. Should I start with a lump sum or DCA my initial investment too?

#400458

Postby timski » March 30th, 2021, 11:08 pm

Hi there,
I intend to invest on a monthly basis into a world tracker (VWRP) within an ISA wrapper, but I already have a lump sum in cash. Would you suggest investing all of my lump sum to start with and then continue with my lower monthly deposits, or invest a higher monthly sum until that initial investment is invested and then reduce to my ongoing monthly value. For example, invest 12K now and then invest £400 pcm, or invest £1400 pcm for 12 months and then reduce to £400 pcm. I intend to invest for 20 years.

Thanks,
Tim.

JohnW
Lemon Slice
Posts: 506
Joined: June 1st, 2019, 7:00 am
Has thanked: 5 times
Been thanked: 176 times

Re: DCA passive investment. Should I start with a lump sum or DCA my initial investment too?

#400462

Postby JohnW » March 30th, 2021, 11:13 pm

No one knows which approach will turn out better, so you choose the one that is more likely to or if that makes you uncomfortable you choose the one that makes you comfortable.
https://www.kitces.com/blog/dollar-cost ... s-returns/

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: DCA passive investment. Should I start with a lump sum or DCA my initial investment too?

#400472

Postby mc2fool » March 31st, 2021, 12:01 am

I believe you mean PCA. ;)

Vanguard did a study on this but I can't find the paper on a quick search*, only this brief summary https://www.vanguardinvestor.co.uk/articles/latest-thoughts/how-it-works/what-is-pound-cost-averaging

Of course, that's based on history; the future may be different.....

* Maybe someone has a link? I think it's been reported on these boards before.

JohnB
Lemon Quarter
Posts: 2497
Joined: January 15th, 2017, 9:20 am
Has thanked: 677 times
Been thanked: 997 times

Re: DCA passive investment. Should I start with a lump sum or DCA my initial investment too?

#400483

Postby JohnB » March 31st, 2021, 6:21 am

You are likely to be richer with a lump sum of course. It depends on your psychology and loss aversion. But if you get that strongly the stock market is not for you.

Best thing with investments is only look at them once a year, less if they are truely long term

xxd09
Lemon Slice
Posts: 419
Joined: November 19th, 2016, 2:44 pm
Been thanked: 255 times

Re: DCA passive investment. Should I start with a lump sum or DCA my initial investment too?

#400537

Postby xxd09 » March 31st, 2021, 10:53 am

Historically getting on with it as soon as possible-leaving it alone for as long as possible has worked the best
As long as you don’t invest in the middle of a downturn/upturn you should be OK
Investing is risky and you make your choices according to your ability to cope with stockmarket volatility -very personal thing
xxd09

NotSure
Lemon Slice
Posts: 916
Joined: February 5th, 2021, 4:45 pm
Has thanked: 679 times
Been thanked: 314 times

Re: DCA passive investment. Should I start with a lump sum or DCA my initial investment too?

#401231

Postby NotSure » April 2nd, 2021, 9:09 pm

If you cannot decide, how about investing £6,000 now, then £900 p/m, followed by £400 p/m? ;)

1nvest
Lemon Quarter
Posts: 4323
Joined: May 31st, 2019, 7:55 pm
Has thanked: 680 times
Been thanked: 1316 times

Re: DCA passive investment. Should I start with a lump sum or DCA my initial investment too?

#401380

Postby 1nvest » April 3rd, 2021, 2:05 pm

timski wrote:Hi there,
I intend to invest on a monthly basis into a world tracker (VWRP) within an ISA wrapper, but I already have a lump sum in cash. Would you suggest investing all of my lump sum to start with and then continue with my lower monthly deposits, or invest a higher monthly sum until that initial investment is invested and then reduce to my ongoing monthly value. For example, invest 12K now and then invest £400 pcm, or invest £1400 pcm for 12 months and then reduce to £400 pcm. I intend to invest for 20 years.

Thanks,
Tim.

Whatever you do, over 20 years it will make little difference, a fractional percentage point differences in 20 year annualised rewards. For comfort (lump sum regret reduction) I'd probably go with half the lump sum in now and the other half after a year - with the optionality to revise that i.e. if during the year stocks drop a lot and you opine that could be the low, then perhaps inject the other half then - rather than waiting until the end of 12 months.


Return to “Passive Investing”

Who is online

Users browsing this forum: No registered users and 11 guests