Thoughts on my investment Strategy

Hi @MarkW


That second link is a very “clean” demonstration of the concept.

As both an out of sample test to verify the article and curious to see how it looks for Aus I did a quick run of the scenario for XAO using their 3% interest rate for savings and entering the market just prior to any drawdown that went 15% plus (on the accumulation index) for bad timing or at the lowest point of any 15%+ drawdown for perfect timing. (Using market index’s monthly data.)


Perfect timing gets a bit closer to DCA on XAO data but the Articles findings on US data still holds.

DCA - first
Perfect timing - second
Bad timing - third




If I could be bothered, analysis would be more realistic with actual historical interest rates, but I wouldn’t expect the difference to be significant enough to change magnitude of results.

If I said horizon is generational and financial planner suggested timing as a strategy.........…….they wouldn't see me for dust.

 

Thanks @dunno. Great stuff.

 

Yep, either a marketing strategy or not the full quid. Either sub-optimal for clients.

 

Hi @Big A why not break your lump sum up into 4 purchases over 4 weeks or 5 over 5. It seems the mental aspect of buying value/holding off for this so called correction is the issue. This might help with that peace of mind. I know you have said you want to lump sum it elsewhere. Maybe transaction costs are high?

 

That link to How to time the market is a great example of DCA winning out.
@Big A Now you shouldnt be actioning anything off the back of my or any one elses comments. Do your own which I can see you are doing. But you are procrastinating way too much in my view.
Sometimes you just have to take the bull by the horns. The way you are going you will end up timing the market badly.

DCA, its even got me thinking now!

The prediction I made in the World Indices thread is nothing more than banter with a bit of fluff thrown in among some technical stuff Ive leant over the years. DYOR.

 

Thank you @dunno . In all seriousness a big plus of discussions such as this is having people like yourself give me the counter argument. There would be no benefit and learning if everyone agreed and did not provide differing opinions. Most of the learning I have done this past year is as a result of others pointing out what they believe are flaws in my strategy and or way of thinking.
And slowly but surely this continued debating is re shaping my mindset for the hopefully long future of investing. I believe even though this discussion is based on my situation there are many others reading this going through the same process and having the same thoughts also learning and developing there investing mindset.

 

Full disclosure that's pretty much what I have done anyway. So initially I had a sum of about $2m to play with. The plan was to drop it in at different levels throughout a correction. I also had access to debt at a low rate against PPOR that gave me approx. another $1m to deploy if markets offered up great buying opportunities. Since that time and as the market has continued plotting along I made the decision to put $800k of that into two different property trusts.

The plan now is to place $400k in by Friday. $200 VAS $50 Hyperion Aus growth fund $100 VGS and $50 Magellan global. Now Charter Hall are apparently looking at offering a new unlisted property trust very soon. I am keen to see what that looks like before committing the last piece of capital. I do love a good property trust but if the market does start to trend down I would put the remaining capital towards equities first. If not then property trust it is.

If the downturn arrives say next year then that's also fine. I will use some of that debt against PPOR. I also expect some further capital to become available early next year from business income. So I have a few different options to take advantage regardless of what the market does next.

 

I appreciate that @Phar Lap . And your right I shouldn't and wont be making decisions based of your prediction or anyone's in general. Never the less any time your read something that plays on your paranoia that you are about to miss time the market, it makes you pause for a second and re consider.

And yes I am procrastinating to much and do risk timing the market with a negative result. That's why I will stick with the plan and move in this week.

 

The enemy in the mirror

 

So I stopped procrastinating and hit buy. While not as large of a buy
as I was first planning on, it’s a move non the less. I said I would go back in this week and I have. Even though the drop over the last two days was making me think maybe I should wait and see where this goes.

I feel like I have at least stuck to the plan. Or the latest plan anyway
( tweaked it a few times ). From here I have set up the monthly buy in to start 1st of next month. Will buy into the same 4 funds each month that I did the lump sum today. Added the wholesale VGS today so that is now in the monthly buy in.

As much as I would like to say I am now going to forget about what the market is doing, I’m sure I will continue to watch closely.

As I like to have a plan for everything and every scenario, the next stage will be if we see a 10% drop from peak I will hit again on a lump sum. Then if the market continues to fall I will continue to lump sum at every 10% lower.

But the monthly buy in on the 1st of each month will continue regardless of the up down or sideways action.

 

@Big A - congrats on sticking to your plan.

It is the most important thing (in my humble opinion) - creating a plan and then sticking to it.

 

Thank you @sharon .

And look the market is up .5% today. Who said you can’t time the market.

 

Try not looking at the market for one day at least. Go on, give it a go.

 

WHAT . Are you insane? A whole day?

Nah only kidding. Really I’m not that obsessed with it. It’s probably more just as a result of being bored. My personality makes me inclined to really get focused on something that interests me.

The fact that I am investing with an extremely long term view what the market does each day or in any given year is not really relevant for me. As long as 20,30,40 year time frames the market keeps doing even close to what it has done in the last 20,30,40 years than I will be a very happy man. Or I should probably say my kids will be very happy.

 

Big-A ..What you may well find as you may already know the process is continual of self--analysis and i think we all need to continue to be re-examining every day until history repeats itself...

 

For infotainment only. Past performance no indicator for future performance caveat emptor.
This visual helps me understand my goal.
Premise based on WHF (could use whatever tickles your fancy)
DCA is $15,000 invested annually with all dividends reinvested with BSP
Lump Sum is $315,000 invested 1999 (this is the total of the DCA) with all dividends reinvested with BSP
Either way you have done better than a Dollar Mite Account, just need cast iron gut for circa 30-40% draw down

 

Thank you @Pier1 . But what if that chart was adjusted to start right before the GFC crash. So say you put the lump sum in right before a large correction compared to DCA the same amount from Pre gfc peak till today.

in that scenario from my eye sight analysis of the chart the DCA would win.

And that’s what always plays on the mind. What if you put in a large lump sum and then shortly after a major correction hits. You have seriously hindered your performance. Long term you should be ahead but by significantly less.

 

No Santa rally last Christmas

 

What if you put in a large lump sum and then shortly after a major correction hits. You have seriously hindered your performance.

Logical Semantics, concerned with matters such as sense and reference and presupposition and implication.
Your question requires that you have the option of choosing the preferred outcome prior to your investment.

"What if" questions are all predicated on having prior knowledge of the future, which very few possess with any certainty, so I tend to steer clear of "what if" questions except one.
Q. "What if I do nothing?"
A. "I will get nothing"

 

Only because the data is in Excel and easy to slice and dice
Because logical semantics would dictate that you would need to know in 1999 that a stumble was coming in 2008 to be able to quantitatively make the decision in 1999 to wait until 2008.......