Advice on timing of buying into index fund

Hi,

I apologise if this question is extremely naive - I am very new to investing and have not taken quickly to all these new (to me) financial concepts.

I have a reasonable little pot of cash that I have decided to invest in an index fund. I looked into index fund vs ETF and decided to go with the index fund option as I think that suits my needs better at this stage.

My question is - does timing matter when it comes to buying into the fund? For example, if I happen to sign up on a day that the market is in a slump, does that make any difference to me? If so, what advice would you have about when to buy into the index fund - should I wait until there is a slump in the market, and if so, to what degree and based on what outcome measures?

Thanks!

 

i have index focused ETFs ( and other styles of ETFs )

yes timing DOES matter but so can the dividends lost waiting for that magical opportunity ( low price ) and that is where it can get tricky

this is a short lesson on compounding

The Effect Of Compounding

and a short lesson on dividend reinvestment

Dividend Reinvestment Plan - DRIP

now index funds ( by nature) track the index they focus onm so your index fund MIGHT increase measurably ( but don't count on that ) but the divs on the way is the main game ( if your reinvest your divs your $$$ values should increase courtesy of the div money trickling in )

IF i knew ( and i DON'T ) the market would fall big in February i would say WAIT , but that drop could be any time the next year ( or year after .. or the year after that or .. )

consider some money in soon and some in an interest-paying bank account ( so IF the big fall happens you can add extra cash , OR invest in something different that suits you as well , say WBC drops to near $10 )

don't panic .. there is rarely a perfect answer , but there might three or four solutions that will suit you nicely

 

Index fund is a type of fund. They can be unlisted or listed - such as ETFs. ETF versions may have lower management costs for basically the same unlisted product

You buy units in a managed fund, so you will get a number of units based on the unit price on the day. ETFs have the share price (one share is one unit) constantly published. If they price slumps each unit will be worth less if you were to sell. It still represents the same thing.

As you are looking at indexing you may already have an understanding that stock picking is a difficult game. Timing is equally hard.

The word spread by the good folks known as bogleheads is to buy the market (index) and buy regularly as you can't time the market.

In practice the two simplest investment ideas are to lump sum. IE put all your money allocated to the market into the market at once. If the market crashes the next day you might have some buyers remorse.

Dollar cost averaging (DCA). In its simplest form you divide your funds into (say 24) equal parts and buy that amount each month until all funds are invested. You might decide to spread the purchases over a longer or shorter time.

Good luck

 

According to a bunch fo research, if you are investing for the long term you are usually better off chucking it all in as a lump sum than dollar cost averaging.

Of course if the market plunges two days later you may not feel this way. And it is very hard not to succumb to the timing disease. If you wait for the 'dip' you may wait for a long time.

Other research indicates that most gains occur from a small number of very good days.

Hence the old saying time in the market not time the market.

If you are nervous about timing and committing, DCA makes a lot of sense.

Just open a Vanguard managed fund account, then Bpay in each month what your comfy with.

You don't mention how much you have to invest or your age or your desires, but it is very hard to go past Vanguards diversified funds. VDHG is the usual ETF version recommended here, and the fund equivalent is VAN0111.