Should I be investing and how best to do it?

Mark McKenzie

Mark McKenzie

Chartered Financial Planner

15 July 2022

Those who pay close attention to global stock markets will have noticed significant volatility recently, impacting portfolio values. Inflation and interest rates are on the rise, which has caused global markets to fall and has affected both equities and bonds.

In turbulent times, you might find yourself wondering if you should be investing or exiting the market, or not making new investments at all. Sentiment can change very quickly, therefore long term investing is key and ensures you don’t miss out on the bounce back which history tells us will come at some point. It has, time and time again.

So, investing (and how much) will depend upon your individual circumstances and you should discuss any investment plans with your financial planner. During volatile times when the stock market is particularly turbulent, one question we tend to get from clients is ‘should I invest it all as a lump sum or invest it at regular intervals?’. Some might think investing at regular intervals is safer; lets discuss the difference.

Lump sum vs. drip? 

Investing a lump sum will mean that all of your capital will buy your chosen investment(s) at one time. In the current environment this might not seem too bad an idea, with the majority of markets lower in comparison to where they were at the start of 2022. By investing as a lump sum now, you will hopefully benefit in the long term when the markets start to recover. 

As well as share price growth, investors benefit from dividends paid out by the underlying companies that you are invested in. The quicker you invest and the more you invest, the more you’re likely to benefit from the magic that is compounding. 

On the downside, lump-sum investing can feel risky. Maybe the markets will fall further as soon as you invest the lump sum? 

Drip-feed investing (or ‘pound-cost averaging’) neatly avoids this. By regularly investing the same amount every month, you’ll buy some investments when prices are high and some when prices are low, thus smoothing out your returns over time.  

A drawback of this approach, of course, is that no one knows where markets are going next. So, while drip-feeding works wonders in a falling market, the opposite will leave you with far less investment than if you’d gone ‘all-in’ from the off. 

Another potential issue to the drip-feed approach is that it can be hard to decide exactly how much you should invest every month when you’re working with a lump sum. To complicate matters, the longer this money stays in your cash account, the more likely its value will be eroded by inflation. 


So lump sum or drip-feed? 

A study by Vanguard in 2016 found, lump-sum investing generates better returns than its drip-feed counterpart roughly two-thirds of the time. 

While Vanguard’s research suggests that lump-sum investing generates slightly superior returns more often, this doesn’t automatically make doing it any easier. 

If investing everything all at once will keep you awake at night, then the potential for slightly lower returns through the drip-feed approach might be a price worth paying.  

That said, Vanguard does recommend moving money into the market over no more than one year, so that you aren’t in cash for too long.  


As mentioned at the outset, everyone’s personal circumstances are different, whatever your concerns or issues may be, please feel free to contact a member of our Wealth team or your financial planner as we are always here to listen and help. 


Disclaimer: Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority. 

This communication does not constitute investment advice or recommendations to buy or sell investments and you should not place undue reliance on such statements or returns, as actual returns and results could differ materially due to various risks and uncertainties.

While all possible care is taken in the preparation of this communication, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the information contained herein can be accepted by this firm.

Figures refer to the past and past performance is not a reliable indicator of future results. You may not get back the full amount of your investment. 

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