Windfall Investment - HYP Timing

[pds2008]

Afternoon

I would be interested in views on the best way to handle a windfall investment (c £200k) given current share prices. Would it be wise to wait a few months before investing in high yield shares/IT's, or drip feeding to maximise ISA protection while waiting for a downturn to purchase shares at a better value.

Where could the money go in the interim to make it work a bit harder for me.

This is currently a hypothetical for me - more likely to become a reality in the new year. However, I would be needing to take dividends as income within 2-3 years from now (after allowing for inflation)

Any advice appreciated

P

[eyeball08]

As it is clearly not possible to predict when the market will decline dramatically or alternatively rebound rapidly, it makes sense to invest in HYP shares over a period of time IMO, even if you had £200k immediately available. Personally, given that the market is not at a low level at present, I would probably invest it at 5 or 10% per month for a few months, and get used to the process of seeking out reliable, large, high yielding companies. The best ones are very rarely all available at once but there is usually a few or several. When you have received some dividends and are getting comfortable with the process, the process could be speeded. This should help avoid putting most of it in before a major collapse which might dent your confidence in the process too much.

[dspp]

A friend of mine took about 8-months to feed that amount into a HYP portfolio. The risk of course is that the market nosedives by 50% just as you get to the end and you kick yourself for not waiting another month or so. That's life and is a risk for any equity portfolio of this type. Doing it a lump at a time gives you time to settle your nerves and gt used to the process.
regards, dspp

[tjh290633]

We have a mantra "The time to buy is now". What that means is that, if you have the money in your clammy little hand (or sitting in your brokers' account ready and waiting) and you see a share or shares which offer you a decent level of yield, then why wait? Nobody knows for sure which way the market will move in the future. Not all shares move in synchronicity with the market.

Since the beginning of this year, the shares in my portfolio have diverged in price from their values at the beginning of the year. ULVR is up 26% while CLLN is down -21%. 20 have risen and 17 have fallen. Some of the fallen may well recover and some of the risen may fall back. The market may do what it will.

The shares which offer themselves to the HYP investor change from time to time. Those which are suitable at the moment may not be the best buys in the future.

You can phase your purchases over time if you wish, or you can go in with one fell swoop. Either way may be the best option, nobody knows. Do what you feel happy with.

TJH

[grimer]

I can understand why you would be reluctant to invest a lump sum into stocks and shares at the moment. If the GBP strengthens against the USD, then you may see the FTSE fall in value. Perhaps you should be thinking about a more mixed approach to investing such a large lump sum - e.g.:

• Global tracker fund such as Vanguard FTSE All-World UCITS ETF (VWRL)
• Income ITs such as City Investment Trust (CTY), Henderson Far Eastern Income (HFEL), etc
• HYP Shares
• Bonds via an ETF such as BND:PCQ:USD

Perhaps £5k per month into each type of investment (£20k total) and keep going until fully invested?

[Itsallaguess]

Would it be wise to wait a few months before investing in high yield shares/IT's, or drip feeding to maximise ISA protection while waiting for a downturn to purchase shares at a better value.

I've always thought I'd want to drip-feed any type of lump-sum investment into the market.

I'd be less concerned personally with what might be the 'best thing to do' from a purely investment/return point of view (whilst acknowledging that no-one can predict the future in that regard anyway....), and more concerned with doing what would be best for my investment-temperament.

I know that if I were to dive into the market with a large, lump-sum investment at a single point in time, I'd always have a simple set of figures with which to beat myself up with.

If I were to drip-feed it in over a period of time, then that process is likely to create enough 'noise' in the figures that I'm far less likely to be bothered about it than if I were to go all-in.

Horses for courses, but make sure you're asking the right questions and getting the right answers.

Is this purely about investment-returns, because if it is then no-one can be sure, or is this about being able to 'cope' during the transition from an 'all-out' investment, to an 'all-in' investment....?

Ask yourself a couple of questions -

1. How would you feel, if you were to invest everything in one go and the general market dropped by 15% or 20% over the next 6 months?

2. How would you feel, and would it be differently to the situation above, if you were to invest just 50% over the next 6 months, and at the end of that period the market had dropped (from the starting point..) by 15% or 20%?

Similar questions can of course be asked regarding the market rising, and by not investing everything right now then if the market went up from here over the next 6 months, you may feel that you'd perhaps 'lost' something if you'd not gone all-in at that initial stage. Does it feel like that sort of market at the moment?

With regards to 'maximising ISA protection', I'm not quite sure what you mean by this, but do remember that you can move cash into a Shares-ISA and leave it there until you want to invest it. You don't have to invest it just because you've got the cash in a Shares-ISA account...

Another option for you, to help achieve an instant-spread with regards to income-diversification, might be to consider Income-related Investment Trusts. If someone were to put a gun to my head and force me to go all-in with a lump-sum investment whilst looking for income, then I'd consider IT's as a fairly hefty part of those market-purchases...

Cheers,

Itsallaguess (recently accumulated 15% cash and just beginning to drip-feed back into the market with new dividends and capital, whilst maintaining that 15% cash position...)

[ZipserSir]

I would be interested in views on the best way to handle a windfall investment (c £200k) given current share prices. Would it be wise to wait a few months before investing in high yield shares/IT's, or drip feeding to maximise ISA protection while waiting for a downturn to purchase shares at a better value.

Based on my own experience of windfall investing I would recommend using the time available to make sure that my approach to investing was absolutely nailed down and water tight. I have added to my knowledge as I've gone along and could have avoided a few pitfalls if I'd really kicked to death my approach first (easier said than done, I suspect). I don't think I've done badly, I've been very lucky, but I could have done better* if I'd really worked out my approach earlier in the process.

*Better off in the sense that I could have avoided having to tell myself off for making mistakes just before I fall asleep.

With timing - it is more luck, of course - but I spread my investments out over several months, which gave me time to reflect upon my approach in between times and hopefully improve upon it (cf first paragraph above).

[JamesMuenchen]

This article also suggests that the investment approach and discipline is more important than the timing.

http://www.telegraph.co.uk/investing/funds/drip-feed-investing-does-really-work/

Although they are really contrasting a monthly drip vs an annual drip, over 20 years the results are basically identical.