Answers to
Practical Questions
Dec 2017 - The stock markets are near all-time highs. Should I invest my nest egg now?
Lump Sum Investing
Studies show that if one has a significant sum to invest, one is typically better off investing it all at once. Having said that, North American equity markets are currently near historical highs, and the last thing one wants to do with a large sum of money is invest it all at once, and then have the market experience a big drop. Everyone knows that money invested in equities should be left alone for a minimum of 10 years, and that the market will very likely recover from this drop over the subsequent years.... it just won’t feel good to experience a big loss on paper right out of the chute.
If one has a large sum of money available for investment today, one may wish to consider staggering their purchase of equities over an extended period of time by investing say 30% of the total amount today, and then say 10% of the initial amount every six months until one is fully invested. For example, consider investing as follows:
20% today
10% in 6 months
10% in 12 months
10% in 18 months
10% in 24 months
10% in 30 months
10% in 36 months
10% in 42 months
10% in 48 months
Place the money that you are waiting to invest in a high interest savings account so that if the market does experience a 20%-50% tumble during the next few years, you have ready access to cash so that you can increase your buying and scoop up some bargains after prices have dropped.
By phasing in your investment, you can ease your way into equity markets, and allow yourself to stay the course in the event of a near term market drop, as well as create the opportunity to buy equities after a significant market sell off. You know, just like buying that pair of shoes you have been coveting while they are on sale!
