Q: if you had a considerable amount of cash to invest now, would you invest it all or would you take a staggered approach considering the run up we have just had? if staggered, over how many months would you invest it?
thanks and happy new year
thanks and happy new year
5i Research Answer:
Almost all academic studies have shown that a lump sum works best. This makes sense, since markets rise over time and investing early gets more compounding. In our experience with investors, however, we have found that many are just not comfortable doing this and the discomfort leads to the wrong decisions at the wrong time. Instead, a monthly (12 to 18 month) fixed contribution allows investors to (a) understand that the market should be a long term investment and (b) realize that, as buyers, volatility is their friend. A systematic approach we have found makes investors calmer, and a calmer investor is more likely to invest for the long term, and get the benefits of compounding.