Power Drip Feeding Into Investment Funds
Published / Last Updated on 17/12/2021
We all know that to make profit from normal investments you must buy low and sell at a higher price whether that is shares, property, bitcoin or other. (Yes, there are derivatives that you can make money the other way but that is for more sophisticated investments).
The basic approach is buy low, sell high but what if you invest and the market falls? You cannot time the market so many people choose the spread the risk by drip feeding into funds over a period. This can be:
- Lump sums that are drip feed from cash funds to market related funds gradually.
- Monthly savings and investments meaning by default your have drip fed into funds anyway.
This is known as ‘pound cost averaging' in the finance industry. We call it ‘drip feeding’ as it describes it perfectly. See Video: Mistake 5 Poor Timing
Power Drip Feeding
This is a technique that we use regularly for our own private investment funds. We always have some of our portfolio held in cash funds for ‘opportunity’ investing i.e., if something comes up or if markets have dipped, we can move quickly.
Whilst we continue to hold funds already invested as well as drip feeding every month more new money, we still look for falls in markets to grab the opportunity or ‘power drip’. It is also known as buying for value i.e., buy when it is cheaper.
For example, just recently with the news of the new omicron variant, markets tumbled and then came back very quickly. If we look at FTSE 100 by way of example:
Friday 19/11/2021 – FTSE 100 closed at 7,233
- The following Monday, the omicron variant story ‘broke’ and markets tumbled.
Friday 26/11/2021 – FTSE 100 closed at 7,041
- A fall on week of 192 points i.e., a 2.65% loss. At the time, we said in our Traffic Lights Alert, ‘don’t panic’. We invested some additional funds into markets, our so called ‘Power Drip Feed’ in addition to our normal regular drip feeding
Friday 10/12/2021 – FTSE 100 closed at 7,291
- Markets recovering the losses on omicron as better news on vaccine effectiveness came out. A rise of 3.55% on FTSE 100 compared to the price 2 weeks earlier.
- Our existing UK stock market holdings whilst losing a little compared to the hige gains in the last 18 months were back up to where they were.
- In addition, we have made 3.55% on the additional ‘power drip’ feed funds we had invested 2 weeks earlier.
We repeat, none of us can call the markets but by using a set of simple rules such as buy low, sell high, drip feed when markets are volatile, pile in when markets tumble and power drip feed when you see minor blips may make your money work harder for you.
