Rabo Investment Funds Question

D

davidpatrick

Registered User
Messages
15
Hi

Sorry if this is a stupid question, but I’m completely new to all this so bear with me please!

I have a question on Rabo Investment Funds. My understanding is that you pick a fund(s) and agree a fixed amount each month to further invest. From what I understand you should really be aiming to keep these for medium to longer term to see a real return?

So just for example

I pick a fund from Rabo (presumably ‘cos I think its priced well and will increase in value) and I agree to purchase a further 100 per month. Let’s say I keep it for 5 years I will have bought 6K of the fund

What I don’t get is that if the fund is indeed well priced now and is on the up, why would I buy more and more of the fund every month for a few years at increased prices each month? If I believe that it will increase, does it not make more sense to buy a 6K lump sum now and sit on it instead?

Am I missing something here?

On an aside - once you agree to pay your additional 100 / month (eg). At some stage can you stop the additional purchases this without having to cash in the fund?

All help is welcomed

Cheers
 
You don't have to buy some every month. You can buy using a lump sum amount just as you described. You are obviously in a regular investing plan. You can stop it anytime you want.
 
Thanks for the quick reply.

So is my logic sound, in that there is not some advantage (I cat see) in buying regularly each month? It makes more sense to buy in Lump sums when the price is right?
 
Yes your logic is spot-on BUT how do you know when the price is right ?

All academic research into this question (and there is an awful lot of it spanning decades) comes up with the same answer over and over again - no one can reliably pick the right moment.
 
davidpatrick said:
So is my logic sound, in that there is not some advantage (I cat see) in buying regularly each month? It makes more sense to buy in Lump sums when the price is right?
Click to expand...
Have a search on AAM for "timing the market" and "dollar cost averaging" to see some of the previous debates on this type of thing.

You're esentially trying to time the market. This may very well work out for you, but for most the logic behind such an investment is that in the long term (>10 years) the stock market should (or at least has historically) provide positive returns... so they are happy enough not to worry about the short term purchase price (e.g. whether they buy this month or next month or in six months time) and simply invest in the market for the long term aim.

Your outlook seems more along the lines of a daytrader (or similiar) who looks to turn a quick profit on the "right pick".
(Not saying it's wrong. It's just not for everyone and a very different POV)
 
Thanks all,

I understand you can never absolutely know when the price is right to buy, but you must at least believe the fund will ultimately increase. Whether you invest each month or in a lump sum - the end goal is the same!

So its seems to me you’d be better off buying for example 6K worth of a fund today and keeping it for 5 years rather than buying 100 / month for 5 years. If the fund does perform well your return from the lump sum investment would surely be far greater?

The only advantages I can see form the regular payment option is that (a) you mightn’t have the lump sum amount available and (b) if the fund goes completely belly up after 2 years you’re only in for 2400!

Cheer for the responses,

As I said I’m completely new to all this so just trying to talk through the pros and cons
 
Impossible to tell in advance. One thing to consider is regular investment € cost averaging and its possible implications for mitigating risk/volatility.
 
it has been historically proven that to make money investing in funds like these you have to keep them for 10 yrs at the very least. it works to ur advantage to put in 100 a month as u wont really feel it and you will be buying more shares in the fund. why not put in 6k now and then 100 a month as well.
 
davidpatrick said:
The only advantages I can see form the regular payment option is that (a) you mightn’t have the lump sum amount available and (b) if the fund goes completely belly up after 2 years you’re only in for 2400!
Click to expand...

You've hit the nail on the head there: surely you've just answered your own question?
 
ang1170 said:
You've hit the nail on the head there: surely you've just answered your own question?
Click to expand...

Yes, I just thought I may be missing some extra advantage of some sort. I fail to see the attraction of this method to be honest, and given that it so popular I thought I must be missing something

Thanks for all the responses
 
clubman - read any article on the web about funds - you have to go through multiple business cycles in order to achieve good returns
 

mickman said:
clubman - read any article on the web about funds - you have to go through multiple business cycles in order to achieve good returns
Click to expand...
So you don't have any specific evidence to support your assertion then? Fair enough.
 
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