ideco and nisa yearly amounts - pay at the start of the year, or spread through the year?

[tense-eye-man]

Hey all,
bit of a while since my last question, have been working on kids' jnr niisas etc, getting there getting there.....

We do have a question, wonderwife and I have been looking into this but can't really figure it out. We understand that it's better to invest monthly than try to time the market, however since we already have enough in the bank to max out our niisas for the year we have been thinking it might be better to put that money to work earlier - or would that be basically a form of timing the market (even tho we're not trying to time the market, just put our money to work earlier!):

For example the NIISA has a yearly amount you can pay in of 40man. Since we have the money sitting in a bank account (doing nothing) is it better to:
a) invest the full 40man at the beginning of the year?
- advantage: the money starts working earlier and so for longer
- disadvantage: the market may be up in January so later on we will lose money
or
b) pay in every month
- advantage: flatten the market fluctuations, no risk of investing at a bad time
- disadvantage: most of the money will either sit longer in the bank (doing nothing) or (more likely!) we'll invest it in a normal (ie no tax breaks) account.

We also have the same issue with the remainder of the money we have in the bank (beyond the emergency fund) - spread the payments or invest all at once?

thanks for any help!

[goodandbadjapan]

I was in a similar situation and decided to max out my wife and my NISAs all at once and then do regular investments monthly with remaining cash.NISA is time limited so I just figured better to get it all in there earlier. That might work out for us or it might not, but the point is that nobody really knows so just do what you feel comfortable with!

[RetireJapan]

Statistically the market goes up more than it goes down, so mathematically investing the full amount at the beginning of the year makes sense.

However, paying the same amount monthly can reduce your regret if the market goes down in February.

It's a matter of knowing yourself and seeing which of the two you are more comfortable with.

I tend to put in half my NISA allowance in January (using my December bonus) and half in July (using the June bonus). But do whatever you like. The main thing is to be investing regularly.

[ricardo]

You are asking the wrong question.

The question should be how long you stay invested, not when you put the money in.

30 years from now your question will be irrelevant.

[TokyoWart]

I agree with RetireJapan's comment. Because investments increase in value over time there is no mathematical advantage to spreading out your NISA/Junior NISA investments over the year. For that reason I make all of my NISA contributions in early January. Because many people working in Japan get a December bonus that can also be practical from a cash-flow viewpoint. If that's not possible (and it is a lot of money) it still makes sense to fully invest in your NISA's as soon as possible during the year rather than holding cash back for set investment amounts each month. Since they're tax advantaged over our other choices here I also prioritize NISA account investing over anything else I do with investments in Japan.

[tense-eye-man]

thanks for the replies everyone, that's very helpful. Even during writing the question I was starting to wonder if there wasn't an option C: it doesnt make that much difference.

And yes, I can see that 30 years from now it's going to be pretty immaterial....

So I guess we'll weigh how we think we'll feel if the market takes a big loss in feb, and decide based on that!

thanks again!

[adamu]

It does make a difference, if the market drops after you invested. If you'd just waited a bit longer, you could've bought lower and made more money in the long run! There's no escaping you'd have been better off waiting if there is a dip. The point is that the long-terms gains will probably be much larger than any dips since you invest, as long as you get invested and don't sell out again.

The amount that you care about that possibility of a drop and resulting regret and lingering loss on your portfolio statement should determine whether you go all in or drip-feed for a bit, or some combination of both.

Personally I'd just go all-in. In fact I did that with a TOPIX fund in 2015 then watched it lose money all year. It's in profit now, thankfully.

[tense-eye-man]

Thanks, that's helpful!

Wonderwife had an alternative perspective on it: managing the same monthly payments every month (just check there is enough money in the account to cover it!) will be a lot easier from an admin perspective.

Not sure what we'll do yet, but we appreciate the input, thanks!

[N00bster]

At the end of the day, it's a matter of risk tolerance.

Invest a bigger sum earlier: increased risk of losses, but also longer time into market leading to potential bigger gains.

Spread your investments over time: reduced risk, but also reduced potential gains.

Keeping in mind that the markets "generally" go up, and that earlier, bigger investment is "generally" the better choice.