To lump sum or not to lump sum. That is the question!

[TokyoWart]

I always "lump sum" when that is an option. For NISA that means I aim to do the "growth" portion investing all in January (buying individual stocks since I am in the US tax system). There are certainly some years where DCA would have been better but I feel I can't predict those times in advance and I am better off not wasting mental energy on thinking about timing investments since I am so bad at predicting market moves.

[JAH]

Having just started NISA this year I'm now grappling with this exact question. Isn't it ultimately just a question of risk tolerance? i.e., in a market that goes up and down but on an upward trend, a January lump-sum investor is statistically likely to outperform a DCA investor, but also faces a much worse "worst case scenario" than a DCA investor? Right now I'm inclining towards January lump sum for the simple reason that once it's done it's done and I can stop procrastinating about it!

[adamu]

Right now I'm inclining towards January lump sum for the simple reason that once it's done it's done and I can stop procrastinating about it!

If you have the money, setting up a ¥300k/mo tsumitate means you won't have to think about it for any other years going forward, either.

[JAH]

Right now I'm inclining towards January lump sum for the simple reason that once it's done it's done and I can stop procrastinating about it!

If you have the money, setting up a ¥300k/mo tsumitate means you won't have to think about it for any other years going forward, either.

It’s hard to argue with that logic. I think that’s my strategy decided. Thanks!

[ChapInTokyo]

Analysis of BOJ governor Ueda-san’s Dec 19th press conference comments seem to indicate that BOJ is unlikely to raise its rates in January 2025. This most likely means that the yen will keep on weakening from now to the end of the year and through January and perhaps early February too.

Since my globally diversified NISA portfolio is unlikely to benefit from a January 2025 lump sum investment if the yen is going to continue on its downward path, I think I might simply buy a DCA tranche of my annual NISA growth quota in January and then do a lump sum investment February or March after the yen recovers at least some of the lost ground.

I wonder whether the Fed will lower their rates in March+Sept or in June+Dec?

[adamu]

Analysis

I do think you get a bit stuck missing the wood for analysing the trees.

Lump sum vs. Tsumitate, as has been covered countless times before online and in research and not limited to RJ, is mostly an emotional decision, so no amount of analysis is going to help.

The analysis that has been done shows that statistically, lump sum has performed slightly better that DCA. But it's only by a little, and even then choosing lump sum does not mean *you* will perform better than drip feeding.

So, doing what suits your risk tolerance or what is practical is the best decision.

For you personally, I suggest you won't be able to resist tinkering when market conditions change, so lump sum would be best. But this is the NISA sub forum, so for the Tsumitate part at least, you could drip feed it, and count how many times you're tempted to change it or play with the bonus part over the year.

[sutebayashi]

Since my globally diversified NISA portfolio is unlikely to benefit from a January 2025 lump sum investment if the yen is going to continue on its downward path

If you measure things in yen terms, and if the yen does continue its downward path, then your global assets will be looking better.

then do a lump sum investment February or March after the yen recovers at least some of the lost ground.

That’s still several weeks away and no one knows what is going to happen, when.

If you want to speculate on currency movements I recommend opening a forex account and doing things there. I’ve been doing that sort of thing for approaching two decades, and it is not easy.

I wonder whether the Fed will lower their rates in March+Sept or in June+Dec?

That doesn’t matter much. For example the FOMC lowered their policy rate the other day, but market rates have gone up since.

[ChapInTokyo]

Since my globally diversified NISA portfolio is unlikely to benefit from a January 2025 lump sum investment if the yen is going to continue on its downward path

If you measure things in yen terms, and if the yen does continue its downward path, then your global assets will be looking better.

What I meant was that if I lump sum investment into NISA at the beginning of next year when the yen might have weakened to say 161 yen to the dollar, I will be filling my 2025 NISA quota when the assets are very expensive in yen terms. Not a good move.

then do a lump sum investment February or March after the yen recovers at least some of the lost ground.

That’s still several weeks away and no one knows what is going to happen, when.

If you want to speculate on currency movements I recommend opening a forex account and doing things there. I’ve been doing that sort of thing for approaching two decades, and it is not easy.

I believe that the BoJ will intervene if the yen continues to drop past 160.

Although market timing is difficult, the Fed will be cutting their rates twice in 2025 and BoJ has also indicated that they will raise their rates when they see wages increase another notch so there is potential there for the yen to strengthen a few months into the year.

I wonder whether the Fed will lower their rates in March+Sept or in June+Dec?

That doesn’t matter much. For example the FOMC lowered their policy rate the other day, but market rates have gone up since.

The market had priced in 3 to 4 cuts for 2025 so when the Fed announced that there will only be 2 cuts, the rates obviously corrected. It’s not rocket science.

[ChapInTokyo]

Analysis

I do think you get a bit stuck missing the wood for analysing the trees.

Lump sum vs. Tsumitate, as has been covered countless times before online and in research and not limited to RJ, is mostly an emotional decision, so no amount of analysis is going to help.

The analysis that has been done shows that statistically, lump sum has performed slightly better that DCA. But it's only by a little, and even then choosing lump sum does not mean *you* will perform better than drip feeding.

So, doing what suits your risk tolerance or what is practical is the best decision.

For you personally, I suggest you won't be able to resist tinkering when market conditions change, so lump sum would be best. But this is the NISA sub forum, so for the Tsumitate part at least, you could drip feed it, and count how many times you're tempted to change it or play with the bonus part over the year.

Good advice! I’ve actually set up the tsumitate part with a 100,000 yen a month DCA via Monex Card. So that’s done.

For the growth part, I think I might DCA a 1/12 of the Growth quota every month until I see the exchange rate improve, and then lump sum the remaining balance of the year’s quota in one go.