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Should I drip-feed or put a lump sum of money into my Stocks and Shares ISA?

Tim | West Midlands| 05/04/2019 | 1

  • Stocks and Shares ISA

Tim's question in full

I've got a Stock and Shares ISA with Moneybox. I recently invested a £5000 lump sum with them, and I'm making regular weekly investments of £75. When I invested the £5000, the share price was quite high based on the performance of the fund. I'm just wondering whether I made a mistake investing the lump sum in one go, and whether I should have drip fed it into the account in the same way as my weekly deposits? If so, should I withdraw and start to drip feed it back in?

Mark Dampier's Response

Hi Tim,

There is a myth around drip-feeding into an investment that it is always the better plan.

First, many investors don’t have large sums to invest, and would rather invest monthly amounts of say £100. This is an excellent way of building up an investment pot over many years.

Some investors who have a lump sum to invest also like to drip feed this money in.

It is more about investors emotions and loss aversion.

Many don’t like the idea of investing £100,000 all at once. They worry that the market might suddenly fall.

Some may divide their sum into four, and deposit the investment in stages. If this gives you peace of mind, then that’s fine.

However as markets generally go up more than they go down, statistically you are more likely to lose out by drip feeding a lump sum in the market, than investing it all at once. Of course there are exceptions like 2008, but they are near impossible to forecast!

Finally, don’t mess around with the investment once you have made it!

 

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Mark Dampier

Mark currently works as Head of Research at Hargreaves Lansdown, and is regarded as one of the best in the profession. He began his career in financial services in 1983, joining Hargreaves Lansdown in 1998. Mark also contributes regularly to The Times and The Telegraph, and writes a weekly column in The Independent.

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