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When is the right time to invest?

The benefits of investment staging

Investing newsroom
Jamie Jack-Thomson, Senior Wealth Management Adviser (Wellington)

Jamie Jack-Thomson
Senior Wealth Management Adviser (Wellington) | Email Jamie »

18 August, 2021

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So, you’ve made the decision to invest your hard-earned money. The next question is often when to invest. People can be tempted to sit on the side-lines and wait for a better opportunity. But investing is a long-term game, and for a long-term investor, time in the market is more important than timing the market. Trying to time the market has generally detracted from investment returns.

But we also recognise that investing can be stressful, and that for some investors, peace of mind outweighs a potential loss of opportunity. While investing one lump-sum generally outperforms over the long-term, staging an initial investment can help a cautious investor to execute a planned long-term asset allocation strategy. Regardless of how you choose to invest, the best investment approach is the one you are most comfortable with. It's better to get started investing, even if slowly, than not to start at all.

Staging

Investment Staging

Staging is the process of drip-feeding funds in stages rather than a lump sum right out of the gate. Unlike dollar cost averaging, staging is when you are in the position to invest a lump sum of money into an investment vehicle. Staging is designed to help “smooth the ride”, minimising an initial investment shock in the event of a downturn.

Staging vs Lump Sum

There are differing opinions to both methods, with research suggesting that a lump sum will outperform staging if you are invested for the long haul.

Studies have looked at stock market returns over long periods of time to work out whether staging over the course of a year, or an upfront lump sum would produce a better return. These studies found that lump sum investing produced higher returns majority of the time. As stock markets are proven to rise over time, you benefit from having money invested for longer periods of time.

However, staging is a risk management tool to help cushion a short-term downturn. By investing money in stages rather than all at once, the short-term risk is minimised.

Can I time the market?  

“Time in the market beats timing the market, every time”Warren Buffett

If you invested $10,000 into the S&P 500 in the year 2000 and left it fully invested until 2020, you would've received an average annual return of approximately 6%. Meaning your $10,000 would've grown to over $32,000. However, if you missed the 10 best days over those 20 years, you'd have less than half of that number. Miss the best 20 days, and you’d just break even, and you'd have lost money if you missed more than 20 of the best investment days. Moral of the story - if you miss the best investment days, you have dramatically decreased your long-term returns. 

 


Investing with Fisher Funds

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