Join our investing community

Investing without dollar cost averaging :eek:

Discussion in 'Managed Funds & Index Funds' started by pinkeye, 6th Nov, 2007.

  1. pinkeye

    pinkeye Active Member

    Joined:
    30th Oct, 2007
    Posts:
    33
    Location:
    Melbourne, VIC
    Hi investEd,

    I'm ready to invest most/all of my savings in managed funds for the long term (minimum 7-10 years, hopefully indefinitely). However I'm torn between investing now to take advantage of current gains :), or waiting to avoid predicted market corrections :(. I understand that even in historical, not speculative terms, the current growth is unprecedented and we're overdue for a significant correction. As a bonus, now there is also this 'sub-prime' nonsense in the mix.

    I'm particularly worried because the money is coming from my savings, not my income, which means there will be no dollar cost averaging effect and going 'all-in' immediately before a large drop in the market would be quite damaging. :eek:

    I realise there's no point asking you to predict the future, so I ask:

    * Which market (Aust or Asia) is less correlated to the US market (or is the difference insignificant)? I would like to increase my exposure to the less correlated market to minimise the effects of the predicted 'sub-prime' crunch.

    * I'm considering transferring the savings from my bank account to the markets gradually, to achieve the dollar cost averaging effect across any drop in the markets. Is this likely to have any significant effect or am I wasting my time?

    * Realistically, is there any point trying to time my entry to the market? If you had a large sum of money to invest, would you wait for the federal election, would you wait for the next rate rise, would you wait for the next certain eventual correction, would you wait for the predicted sub-prime crash, or would you just make sure you're investing for the long term and do it immediately?

    Thank you,

    Anthony
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Only to your mental health and short term net worth ... long term - you'll still own the same number of shares/units as if the market hadn't dropped !!

    You're facing exactly the same questions that everyone faces and struggles with. Unfortunately there is no right or wrong answer, and it seems like nobody has a working crystal ball at the moment (what's with the crystal ball repairers union at the moment - this strike is ridiculous!! :rolleyes: )

    In times of uncertainty - I find it very useful to go back to basics, to makes sure you have a good set of realistic goals written down, and use them as a measuring stick!

    If a particular course of action was not going to get you closer to your goals, then ignore that option.

    Note that for goals which require money ... the shorter term the goal, the more conservative you'll need to be to cope with market volatility.

    Either way - you need to make a decision you can sleep at night with - take action (even if that action is to do nothing - provided you made that decision), and move forward.
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    As Sim says these questions vex us all.

    If I were in the position you described I'd dip my toe in the water and then gradually feed the money in (perhaps in increasing lumps) over time. The psychological damage to your investing confidence of going out hard and getting caned in the short term may be too offputting.

    Also, you shouldn't expect to be an expert overnight...so you should take your time to learn the ropes a bit first.

    Cheers
    N.
     
  4. gad

    gad Well-Known Member

    Joined:
    5th Sep, 2005
    Posts:
    150
    Location:
    Canberra
    G'day pinkeye

    I think the best recommendation I could give you is to re-read both Sim & Nigels previous posts, again & again & again.

    Both posts contain so much value you really need to let it sink in & understand what they are saying.

    Invaluable!

    Cheers
     
  5. pinkeye

    pinkeye Active Member

    Joined:
    30th Oct, 2007
    Posts:
    33
    Location:
    Melbourne, VIC
    Thanks guys, it makes sense that nobody can answer this for me! I will plan my own course of action. :cool:
     
  6. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    If your worried about cost averaging, put money in say each month for 6 months..

    Either way, in 10 years time, the market will be higher than today.. even if you get in just before a 'crash'.

    Market is strong, so I doubt we will see any 'crashes' any time soon..

    Those people who sold out during the august correction, are now kicking themselves! We are back in record territory.