SIPP and SS ISA sanity check

[Bean]

The theory behind drip-feeding is that you get more shares when the prices are lower, in a volatile market. I'll give a simple illustration.

Suppose you put £500 into a share that has a £1.00 price today. How many shares do you have? 500.

Suppose you put £100 into it every month for five months. Suppose the share price on the purchase dates is 100p, 90p, 105p, 85p, 120p. That works out to an average of 100p, same as if you bought them all today at 100p. But how many shares did you get?

Month 1: 100 at 100p.
Month 2: 111 at 90p.
Month 3: 95 at 105p.
Month 4: 117 at 85p.
Month 5: 83 at 120p.

How many shares do you have? 506. If the price moves from 100 to 120p during this time frame, the initial investment is worth £600. The drip feed investment is worth £607.20.

The theory is that for an asset with a volatile price, you benefit more from the lows and are hurt less by the highs if you invest the same amount regularly and hit both the lows and the highs.

Now, if you are able to predict the future, you wouldn't do that. You'd wait until month four, put all £500 when the price is 85p, and sell a month later for 120p. You'd use the proceeds to fly to Vegas and predict the future there.

Drip feeding is not always good. If the price is stable and steadily increasing, you are far better to get in as much as you can as early as you can. If the monthly prices are 100p, 105, 110, 115, & 120, you will kick yourself for dripfeeding rather than just putting in the £500 in month one. So you want to think about the type of investment it is. But if it is something relatively volatile, drip feeding is the way to go. And most high-profile shares are relatively volatile because people are just gambling and if Theresa May sneezes or Boris Johnson talks out of his backside or Donald Trump tweets, the market jumps.

Dependant on your provider, this approach may increase your total trading fees though....

Oversimplified but e.g.
1x £5 trading fee for 1x £500 x 100p shares, = £5 fees
vs
5x £5 trading fee for 5x £100 x 85-120p shares = £25 fees

[Fred Bloggs]

Dependant on your provider, this approach may increase your total trading fees though....

Oversimplified but e.g.
1x £5 trading fee for 1x £500 x 100p shares, = £5 fees
vs
5x £5 trading fee for 5x £100 x 85-120p shares = £25 fees

But it depends. Some platforms trade funds/OEICs for no charge. Some platforms charge discount rates for buying shares/funds regularly etc.... So you really need to do your homework on this before deciding which platform works best for you.

[WordIsBond]

Dependant on your provider, this approach may increase your total trading fees though....

Oversimplified but e.g.
1x £5 trading fee for 1x £500 x 100p shares, = £5 fees
vs
5x £5 trading fee for 5x £100 x 85-120p shares = £25 fees

True. But the only meaningful price is price inclusive of trading fees (when buying), net of trading fees (when selling). So my post was accurate enough, just oversimplified a little. Hopefully none of us will ever oversimplify, though.

As Fred says, it depends on the platform and their fees. Drip-feeding £100 / month, if there are any fees at all, probably doesn't make much sense. If you are only putting in £100 / month, do it once a quarter instead, perhaps.

[Fred Bloggs]

True. But the only meaningful price is price inclusive of trading fees (when buying), net of trading fees (when selling). So my post was accurate enough, just oversimplified a little. Hopefully none of us will ever oversimplify, though.

As Fred says, it depends on the platform and their fees. Drip-feeding £100 / month, if there are any fees at all, probably doesn't make much sense. If you are only putting in £100 / month, do it once a quarter instead, perhaps.

And on the other hand, if you want to buy funds regularly for GBP 100 a month, try Close Bros who charge nothing to buy/sell funds and charge around half the platform fee that the often suggested platform here charges (HL).

[Dark Black]

And on the other hand, if you want to buy funds regularly for GBP 100 a month, try Close Bros who charge nothing to buy/sell funds and charge around half the platform fee that the often suggested platform here charges (HL).

Likewise Cavendish - with whom I've just setup a SIPP up, similar fees.