Lump Sum Investing

Whether it is an inheritance, proceeds from a savings plan, selling a property or business the following should be useful…

When investing in real assets, pretty much anything apart from an instant access bank account, an investor should be prepared to invest for a minimum of five years.

There are several reasons for this: the investment needs a chance to recoup the costs of investment and generate a return in excess of inflation, typically the longer the time invested the better the chances of this being achieved.

Investment timing is also an important consideration. If an investor is unfortunate enough to invest at the peak of the market, it may be several years before the investment returns to its former value.

All stock markets have cycles and whilst there are other types of investment, equities are the most talked about in press coverage, so it is easy to get swept up in the headline grabbing sound bites preaching that the end of the world is nigh.

To make money on any investment an investor must remain rational: buy low and sell high. However, all too often fear grips investors and they make irrational decisions.

In his industry standard book,’The Intelligent Investor’ Ben Graham anthropomorphises the market, describing it as a manic depressive, suffering irrational highs and lows. Not getting caught up in the hype surrounding a stock market crash is difficult. Resisting the urge to sell once the market has gone down is very hard but essential to making a profit.

Handy Hint: When investing, make a note of the reason for the investment. Keep it somewhere safe. In moments of crisis or doubt look at these points again and check that they are still true. If you have invested for the right reasons these notes will help you remain focused on your objective. And, as Baron Rothschild, an 18th century British Noble and member of the famous banking family, is credited with saying; ‘Buy when there’s blood on the streets…even if it is your own.’

In other words, if it was a good investment at the high price previously paid, logic says that there is even more chance of profit at the lower price, so buy more.