Today’s stock market volatility has given extra urgency to one of the classic questions that every investor faces at some point.
Should you invest lump sums in the stock market whenever you have cash at hand, or set up a regular monthly savings account and drip feed the money instead?
Both have advantages and, inevitably, disadvantages, too. The decision partly depends on personal factors such as your attitude to risk, how much money you have at your disposal and market conditions at the time.
The appeal of investing a lump sum is that your money starts earning right away. Given that stock markets go up over time, the sooner you invest, the better.
Dino Ibric, vice director at Swissquote Middle East and Africa, says for those looking to generate maximum returns, lump sums beat regular monthly investments.
“When markets are rising, investing a lump sum means you take full advantage today.”
If you are investing in stocks that pay dividends, it also means you will generate income sooner rather than later.
Here is how that works. Say you invested a $100,000 lump sum into a global stock market tracker and it delivered an average total return of 6 per cent a year after charges. After 25 years, you would have $429,187.
If you invested your $100,000 over 25 years instead, putting away $4,000 a year, you would end up with $249,793. That is $179,394 less. The sum is much lower because most of your $100,000 is sitting on the sidelines in the early years. The last $4,000 you invest has a mere 12 months to grow.
That is the general principle. The practice is a bit more complicated. For example, anybody who put $100,000 into shares in February last year would have been sweating when stock markets crashed in March.
They could easily have found themselves down $35,000 within days, and nobody wants to go through that.
When markets are rising, investing a lump sum means you take full advantage today
Although they should have since recovered most of their losses and should end up well ahead after 20 or 30 years, it would not have been much fun.
Many fear that markets are vulnerable to another crash right now as Covid-19 lockdowns drag on and last year’s fiscal and monetary stimulus threatens to revive inflation. The recent sell-off in US technology stocks reflects concerns that interest rates hikes could curb growth.
Mr Ibric says drip-feeding money into the market will reassure risk-averse investors worried about investing at today’s record highs.
“It minimises the downside risk of a sinking stock market.”
A good option for those with larger sums, such as $100,000, would be to pay chunks into the market over the next six to 12 months, rather than 25 years.
That would protect you against a sudden crash – at least this year – while giving your money early exposure to the market.
Mr Ibris says you can further reduce risk by spreading your lump sum across different assets such as shares, bonds, cash and property, across several sectors and parts of the world.
“These assets should match your own personal circumstances, attitude to risk and how long you have to invest.”
In turbulent times, regular monthly investing offers one great advantage that you do not find with a lump sum.
You benefit from stock market dips as your monthly contribution will pick up more stock or investment fund units.
Time spent sitting on the sidelines is more detrimental to investment returns than market volatility
This process is known as dollar-cost averaging and Laith Khalaf, financial analyst at AJ Bell, says this gives you a smoother journey.
“It also takes the emotion out of investing. After you set up your monthly plan, you can more or less forget about it.”
Darius McDermott, managing director of Chelsea Financial Services, says if you invest monthly, remember to increase your contributions every year, in line with any salary increases, otherwise inflation will erode their value in real terms.
Somebody who invested $1,000 a month would have $697,877 after 25 years, assuming the same 6 per cent growth rate. However, if they increased their contributions by 3 per cent every year, they would have $931,991. That is $234,114 more.
“If your income falls at some point, you can always reduce your payments,” says Mr McDermott.
That kind of flexibility is vital. What you must not do is lock yourself into a regular monthly savings plan for a fixed term, such as 10 or 25 years, with punitive redemption penalties if you exit early.
You do not know what your income will be in future and need absolute freedom to change your mind.
While these types of contracts are less common than before, they still exist. Most are sold by offshore financial advisers and wealth managers and are aimed at unsuspecting expatriate investors.
Chris Keeling, chartered financial planner at The Fry Group, says investing regularly means you automatically avoid the temptation to time your entry into the market, something nobody can do with consistent success.
He says you should not try to time lump-sum investments either. If you pay a chunk of money into the market and it does crash, stay calm. Investors who panicked and sold last March would have banked a substantial loss.
“Those who weathered the storm were still able to make healthy returns in 2020,” Mr Keeling says.
He says investing for retirement is a long-term task, which gives you plenty of time to recover from setbacks.
“Time spent sitting on the sidelines is more detrimental to investment returns than market volatility.”
There is never a wrong time to invest, as long as you have the time to ride out market volatility, Mr Keeling says.
“Investing lump sums in rising markets and regular savings in falling markets is a good way to minimise volatility and maximise your overall investment returns.”
He also suggests taking financial advice from a qualified professional before making your investment decisions.
In practice, most people do not have much say in the matter. They invest every month because that is when their salary comes in. If you also pay in lump sums when you have money at hand, you might combine the best of both worlds. It is not often that happens in investing.
Manchester City 4
Otamendi (52) Sterling (59) Stones (67) Brahim Diaz (81)
Real Madrid 1
Oscar (90)
Squad
Ali Kasheif, Salim Rashid, Khalifa Al Hammadi, Khalfan Mubarak, Ali Mabkhout, Omar Abdulrahman, Mohammed Al Attas, Abdullah Ramadan, Zayed Al Ameri (Al Jazira), Mohammed Al Shamsi, Hamdan Al Kamali, Mohammed Barghash, Khalil Al Hammadi (Al Wahda), Khalid Essa, Mohammed Shaker, Ahmed Barman, Bandar Al Ahbabi (Al Ain), Al Hassan Saleh, Majid Suroor (Sharjah) Walid Abbas, Ahmed Khalil (Shabab Al Ahli), Tariq Ahmed, Jasim Yaqoub (Al Nasr), Ali Saleh, Ali Salmeen (Al Wasl), Hassan Al Muharami (Baniyas)
Mohammed bin Zayed Majlis
The five pillars of Islam
1. Fasting
2. Prayer
3. Hajj
4. Shahada
5. Zakat
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
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Salman Khan’s father, Salim Khan, is one of Bollywood’s most legendary screenwriters. Through his partnership with co-writer Javed Akhtar, Salim is credited with having paved the path for the Indian film industry’s blockbuster format in the 1970s. Something his son now rules the roost of. More importantly, the Salim-Javed duo also created the persona of the “angry young man” for Bollywood megastar Amitabh Bachchan in the 1970s, reflecting the angst of the average Indian. In choosing to be the ordinary man’s “hero” as opposed to a thespian in new Bollywood, Salman Khan remains tightly linked to his father’s oeuvre. Thanks dad.
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
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GAC GS8 Specs
Engine: 2.0-litre 4cyl turbo
Power: 248hp at 5,200rpm
Torque: 400Nm at 1,750-4,000rpm
Transmission: 8-speed auto
Fuel consumption: 9.1L/100km
On sale: Now
Price: From Dh149,900
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Mia Man’s tips for fermentation
- Start with a simple recipe such as yogurt or sauerkraut
- Keep your hands and kitchen tools clean. Sanitize knives, cutting boards, tongs and storage jars with boiling water before you start.
- Mold is bad: the colour pink is a sign of mold. If yogurt turns pink as it ferments, you need to discard it and start again. For kraut, if you remove the top leaves and see any sign of mold, you should discard the batch.
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HER%20FIRST%20PALESTINIAN
%3Cp%3EAuthor%3A%20Saeed%20Teebi%3C%2Fp%3E%0A%3Cp%3EPages%3A%20256%3C%2Fp%3E%0A%3Cp%3EPublisher%3A%C2%A0House%20of%20Anansi%20Press%3C%2Fp%3E%0A
The National Archives, Abu Dhabi
Founded over 50 years ago, the National Archives collects valuable historical material relating to the UAE, and is the oldest and richest archive relating to the Arabian Gulf.
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The BIO:
He became the first Emirati to climb Mount Everest in 2011, from the south section in Nepal
He ascended Mount Everest the next year from the more treacherous north Tibetan side
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One in nine do not have enough to eat
Created in 1961, the World Food Programme is pledged to fight hunger worldwide as well as providing emergency food assistance in a crisis.
One of the organisation’s goals is the Zero Hunger Pledge, adopted by the international community in 2015 as one of the 17 Sustainable Goals for Sustainable Development, to end world hunger by 2030.
The WFP, a branch of the United Nations, is funded by voluntary donations from governments, businesses and private donations.
Almost two thirds of its operations currently take place in conflict zones, where it is calculated that people are more than three times likely to suffer from malnutrition than in peaceful countries.
It is currently estimated that one in nine people globally do not have enough to eat.
On any one day, the WFP estimates that it has 5,000 lorries, 20 ships and 70 aircraft on the move.
Outside emergencies, the WFP provides school meals to up to 25 million children in 63 countries, while working with communities to improve nutrition. Where possible, it buys supplies from developing countries to cut down transport cost and boost local economies.
Where to donate in the UAE
The Emirates Charity Portal
You can donate to several registered charities through a “donation catalogue”. The use of the donation is quite specific, such as buying a fan for a poor family in Niger for Dh130.
The General Authority of Islamic Affairs & Endowments
The site has an e-donation service accepting debit card, credit card or e-Dirham, an electronic payment tool developed by the Ministry of Finance and First Abu Dhabi Bank.
Al Noor Special Needs Centre
You can donate online or order Smiles n’ Stuff products handcrafted by Al Noor students. The centre publishes a wish list of extras needed, starting at Dh500.
Beit Al Khair Society
Beit Al Khair Society has the motto “From – and to – the UAE,” with donations going towards the neediest in the country. Its website has a list of physical donation sites, but people can also contribute money by SMS, bank transfer and through the hotline 800-22554.
Dar Al Ber Society
Dar Al Ber Society, which has charity projects in 39 countries, accept cash payments, money transfers or SMS donations. Its donation hotline is 800-79.
Dubai Cares
Dubai Cares provides several options for individuals and companies to donate, including online, through banks, at retail outlets, via phone and by purchasing Dubai Cares branded merchandise. It is currently running a campaign called Bookings 2030, which allows people to help change the future of six underprivileged children and young people.
Emirates Airline Foundation
Those who travel on Emirates have undoubtedly seen the little donation envelopes in the seat pockets. But the foundation also accepts donations online and in the form of Skywards Miles. Donated miles are used to sponsor travel for doctors, surgeons, engineers and other professionals volunteering on humanitarian missions around the world.
Emirates Red Crescent
On the Emirates Red Crescent website you can choose between 35 different purposes for your donation, such as providing food for fasters, supporting debtors and contributing to a refugee women fund. It also has a list of bank accounts for each donation type.
Gulf for Good
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Noor Dubai Foundation
Sheikh Mohammed bin Rashid Al Maktoum launched the Noor Dubai Foundation a decade ago with the aim of eliminating all forms of preventable blindness globally. You can donate Dh50 to support mobile eye camps by texting the word “Noor” to 4565 (Etisalat) or 4849 (du).
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Karnataka Tuskers 110-5 (10 ovs)
Tharanga 48, Shafiq 34, Rampaul 2-16
Delhi Bulls 91-8 (10 ovs)
Mathews 31, Rimmington 3-28
Karnataka Tuskers win by 19 runs
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West Indies v England ODI series:
West Indies squad: Jason Holder (c), Fabian Allen, Devendra Bishoo, Darren Bravo, Chris Gayle, Shimron Hetmyer, Shai Hope, Evin Lewis, Ashley Nurse, Keemo Paul, Nicholas Pooran, Rovman Powell, Kemar Roach, Oshane Thomas.
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1st ODI - February 20, Bridgetown
2nd ODI - February 22, Bridgetown
3rd ODI - February 25, St George's
4th ODI - February 27, St George's
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Zayed Sustainability Prize
Mohammed bin Zayed Majlis
