Lump Sum Investing vs Cost Averaging in 2024 (ETFs)
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- Опубліковано 1 чер 2024
- Let's discuss the pros and cons of lump sum investing vs cost averaging in 2024!
🇪🇺 Best broker in Europe (ETFs): angelo.fi/ibkr
Is it better to invest a lump sum or cost average into ETFs and the stock market? After explaining each of the two strategies, we'll look at some historical data and studies to figure out which of the two is likely to get you better returns as an investor.
I'll then show you how to buy ETFs to implement each strategy using the best brokers in Europe and reveal if I cost average or lump sum invest larger sums of money myself!
My Favorite Brokers (ETFs & Stocks):
🇪🇺 Interactive Brokers: angelo.fi/ibkr
Tiered vs. fixed pricing sheet (IB): angelo.fi/ibpricing
🇪🇺 Trade Republic (4% p.a. on €): angelo.fi/trep
🇪🇺 Scalable Capital: angelo.fi/sca
🇩🇪🇦🇹 Easiest for Germany & Austria: angelo.fi/etfs
👉 Compare ETFs & Stocks: angelo.fi/analyze
Broker Guides:
🎥 IBKR: • Interactive Brokers Tu...
🎥 Trade Republic: • Trade Republic Review ...
🎥 Scalable Capital: • ETF Investing for Euro... &t=810
🎥 Why these 3 are the best in Europe: • The BEST BROKERS for E...
💰 All my investments (incl. P2P lending and crypto): angelo.fi
📈 Where I Track my ETFs: angelo.fi/getquin
⏰ Time-Stamps:
0:00 The wrong time to invest everything into ETFs?
0:37 What is Lump Sum Investing and Cost Averaging?
2:06 Pros & Cons of Lump Sum Investing
4:32 Pros & Cons of Cost Averaging
6:14 Which Investment Strategy is Better?
8:39 How to Lump Sum or Cost Average into ETFs in Europe
11:01 Conclusion: Putting Things Into Perspective
Our main ETF: Vanguard FTSE All-World Accumulating (ISIN: IE00BK5BQT80, Ticker: VWCE)
🎥 Watch these next:
• ETF At Record Highs? A...
• The Truth About Passiv...
• How to Retire Early in...
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Disclaimer: I am only sharing my own experience. I'm not a financial advisor and you should always do your own research and due diligence before investing. Investing involves risk of losses.
Do you lump sum or cost average?
🇪🇺Best Broker in Europe: angelo.fi/ibkr
🇪🇺Trade Republic: angelo.fi/trep
🇪🇺Scalable Capital: angelo.fi/sca
👉Compare ETFs & Stocks: angelo.fi/analyze
📈Where I track my ETFs: angelo.fi/getquin
🇦🇹🇩🇪Germany & Austria: angelo.fi/atde (I recommend these for tax reasons if you're based in Austria or Germany!)
💰All my investments (incl. P2P lending): angelo.fi
I do the both ways: it depends on the size of windfall income I get. If it's a small sum of money when compared to my portfolio, let's say 5%, I will do a lump sum investment; If it's big enough, 50% or up, I do dollar cost averaging by splitting into 12 months at most. For example, when I receive annual bonus at end of year, I always do lump sum, while last year, I invested the profits after selling a rental property by DCA within a 12-month time frame. DCA gave me a peace in mind.
Seems like a very well thought out approach, I like it! Thank you for sharing it!🙏
Thanks for another high quality video! 😁
You're very welcome!
Great video as usual!
Thank you! 🙏
Most people are dollar cost averaging, especially their retirement accounts. You put a little bit in each week as you make the money.
Hi Angelo,
I just stumbled in your video for the first time and I like to to say, thank you.
I really appreciate how you share solid information in a clear and calm way.
I'm beginner investor based in Europe as you and I find very difficult to find good content.
I'll check your other videos.
Thanks again
Hi Lud, that makes me very happy! Thank you for taking the time to let me know! 🙏
Hello, I think it is missing something super important. This question is mostly asked by beginners who start investing. In their case it is important to learn to pass orders on their brokers platforms, which types of order, playing with the spread etc. Doing DCA allow you to experiment and learn on smaller orders. Not essential for long term ETF investors but still very valuable learning. If you invest all your savings as your first transaction I am not sure you may not end up passing a bad order type making you loose more than on DCA. I would see the potential loss of doing DCA in that case as investing in my own learning ...
Smart DCA!
I get that. The problem is, I can only cover so much in each video. And going into that much detail in an already pretty long video about the pros & cons of lump sum investing vs. cost averaging would go a bit too far off-topic in my opinion.
I invested like 60% at once and other 40% every month
Works for me
Good video👍👍
Thanks Flo! 🙏
Thank you Angelo for yet another great video! I appreciate the effort and time you put in the videos 🙌🏻
Thank you Willem! They definitely take me way longer than I'd like to admit to research, write, record and edit :)
Cost Averaging for me is the best
Thanks for this video Angelo! Please can advise/ share a comparison between Interactive Brokers and Degiro when buying based on cost averaging. TIA
You're welcome! I compared the two here: ua-cam.com/video/J_BYmJFGcjA/v-deo.html and here: ua-cam.com/video/4B05bx3pHT8/v-deo.html
On IB you're able to automate your purchases now thanks to recurring investments, so in my opinion (in addition to other advantages) they're a much better option for cost averaging: angelo.fi/ibkr
Great video, Angelo! Tjank you so much for your legacy here! Do you have any video on the pipeline to talk about tax declaration? I'm also situated in Austria, would be nice to know how to efficiently declare to maximize tax returns! Keep up the great journey!
Thank you Augusto! No, since Austrians only make up 1% of people watching, it wouldn't make much sense sadly. But send me an email, I'd be happy to forward you some info! p2pinvesting.eu/contact
can you please do a video for revolut savings acount (flexible account)
Thank you Angelo, I always get so much out of your videos! They have been pivotal for me in my investment journey. One thing that you might have covered already: what are the pros and cons if you set the dca to be more regular, like instead of every month, to be weekly for example. And then that got me thinking: is there any way to algorithmically invest based on say a % trend down over a given period; for example, if etf goes down over 2% over x days, then invest y amount from cash in the sidelines. It could be that these elaborate strategies make little difference in the long run perhaps 😅
Thank you Chris! Honestly, I wouldn't over-do it unless you're able to invest amounts over 500€ each week. Otherwise you might be spending more than needed in trading fees. Once a month on a regular basis should be plenty and I don't think over-thinking the frequency or strategy would make much of a difference long-term (other than costing you more time and money).
@@AngeloColomboFi Thanks, that makes sense! It is so easy to overthink these things
Hi Angelo, i just subscribed to your channel, I am really liking your videos. They are very clear and informative. I am trying to create a financial plan and it would be great if you could share the spreadsheet you are using to calculate IBKR fees. Thank you!
Hi Carlo, I'm happy to hear that! Sure, here it is: angelo.fi/ibtieredvsfixed
Hi I have a quick question: how's possible that Interactive brokers changes me 3/4 euros on transaction worth about 50/150 euros? It is normal having those fees on ETFs or I'm doing something wrong? (I bought from Borsa Italiana and the London exchange) and if I'm doing something wrong, how could I pay less fees?
(I'm in Italy)
Hello Angelo, great video as always,
what exchange do you recommend for investing in crypto in Austria ( fees + tax ) thanks
Thank you! Right now I'm mainly using Bitvavo, which have very low fees and are based in the Netherlands: angelo.fi/bit
Bitpanda is great as well, but a lot more expensive sadly.
Good video, thanks. You're not using DeGiro? Not sure if it is present in Austria..
Thank you! No, not any more for a few reasons: ua-cam.com/video/4B05bx3pHT8/v-deo.html
@@AngeloColomboFi quite comprehensive, thanks
Amazing videos, it helped me a lot on my research. Which frequency do you recommend for Cost averaging? I understand that cost is proportional to the frequency, I did some simulations on TR. For now I decided to go with DCA every two weeks. But I'm thinking for my wife, maybe a monthly basis would be better since she doesn't bother that much.
Thanks
Once a month is more than good enough!
Hi,
I wonder what you’re thinking about buying a real estate for example your current appartment vs holding the same amount of capital in your etf? What do you think is better?
Thanks for great videos😊.
I think this really depends in which country you want to buy the real estate. In many EU countries there is a housing shortage and in recent years the governments are making it less and less attractive to invest in real estate.
Compared to our low rent, buying an apartment like ours would make zero financial sense in Vienna (at least 330k) for us. Either way, I prefer the simplicity & flexibility I get with ETFs and that I don't need to take on extra risks using leverage or having a large part of my assets in a single apartment in a single location.
vielen herzlichen Dank, Angelo, in Austria, :
1. is there a tax-deferred account to help me save for my child's post-secondary education? basically in 20 years, I will take the money out for his education, which should be tax free.
2. what type of investments would you recommend for children in Austria?
You're very welcome! No sadly not. But Austria doesn't tax gifts among family (yet?), so we have an ETF savings plan (VWCE) running for our daughter and we'll transfer her the shares once she turns 18.
Still have to figure out exactly how that works when shares are transferred, but most likely yes, she'll have to pay capital gains tax on profits she takes out. Luckily, there's an option to tax capital gains at your personal income tax rate in Austria, so she would be able to realize 11.693€ capital gains tax-free (based on current tax brackets) if she doesn't have other income yet at 18. Or 19.134€ per year paying an average of only 7,78% in taxes.
Super video!!! Sollte man den VWCE am 1. des Monats, oder am 15. des Monats besparen?
Danke! Ich hab leider keine perfekte Antwort, hab beide Varianten oft getestet 😅
Ich hab bisher das Gefühl, dass das monatliche Datum ziemlich egal ist, hauptsache regelmäßig :)
@@AngeloColomboFida hast du recht!! Ich danke dir :)
Hey Angelo, like some of the other folks commenting, your content has been very insightful with my investment journey! Personally I like DCA as well. It’s simpler, and as they say, it’s not about timing the market, but about your time in the market as a whole!
What do you tend to do when you reach the end of the month with more savings aside your DCA plan? Do you invest that right away as well, or do you accumulate that, and then lump sum at some point?
Keep up the good content! Big fan! 😊
Thank you! I usually invest extra money right away, since trading fees are so low nowadays :)
Out of curiosity, what’s your opinion on this. I have a friend who loves to time the lows of the market. He buys regularly into the market, but tries to time his purchases at the troughs of the charts. Is that advisable compared to just dollar cost averaging whenever you’re ready to invest? Is this something you do yourself as well?
Thank you for the great content. For me, it is clear that lumsum is better if planning to hold for more that 15 years. Im on that boat. I am still aiming at around 25 years. However, question is, is it better to cost average (basically based on my income) or take a loan and invest it and pay the loan over 4 or 5 years if we assume around 3% interst rate and then repeat after i pay the debt.
What are your thoughts?
You're welcome Mohammed! I don't like the idea of taking on extra risk via leverage, but maybe that's just me. By the way, where are you able to get a 3% interest loan nowadays? 😅
@@AngeloColomboFi you are right, i dont think it is possible to find 3% interst rate now. I was just thinking if there are studies on this type of compassion cost averaging vs taking a lone in advance for lump-sum investing.
I personally think take a loan for less than 3 to 2.5% interest rate and invest it (lump sum or dca as soon as possible)is a good strategy. Because the inflation will cover the interest. You can search life cycle investing for the details.
Hi Angelo, how do you look at currency risk since you are in Europe, but big majority of stocks in VWCE is not in €? Should you be more exposed to European stocks?
Hi Dejan, do you feel Europe is safer economically long-term compared to the world as a whole? I feel good investing this way, but feel free to add more European stocks! ua-cam.com/video/dFl7KMLlgOU/v-deo.html
Personally I cost average into three ETFs on Trade Republic each month. If I have spare cash I just keep in in Trade Republic to get some interest rather than buying more stocks right away. I am aware that it doesn't represent the best strategy arithmetically but it's the one I feel most comfortable with as a relatively new investor (at least in the context of ETFs).
Doesn't sound bad to me, thank you for sharing!
How do you manage taxes when TR is not “Steuer einfach”? Thanks
I'm self-employed, so I file them additionally in my yearly tax return. Trade Republic and Scalable now offer pretty usable yearly tax reports as well for Austria, which they usually send out about 1 month before tax deadline.
How relevant! Thank you🤗 it is probably true also because of the similar age of the subscribers. This video is very helpful!
Can not find the IBKR fees spreadsheet 🤔
You're very welcome! I tried to look at it from a few angles :)
Should be in the description, but here it is anyway: angelo.fi/ibpricing
Could you please elaborate more about the it? I could not understand if when one invests initial sum of let's say 1000 euro and then adds monthly to it 100 euro, is this still a lump sum strategy?
If that was all you had to invest then yes, it was a lump sum investment at the start, with you then continuing to cost average as you have more money to invest. I think the definition is pretty irrelevant though :)
I am new here (originated from Montenegro but watching you from Germany...I am 43 and about to start investing... 🤑 Could you speak a bit slowly bcs I am trying to capture every single word since most information is new to me. And how you set/opened a saving plan for your minor child (since she doesn't have a Steuer ID or Steuer Nummer)? Tnx and all the best 🤗🤗🤗
Hi Sonja! I'll try :) We simply have a commission-free ETF saving plan for our daughter on Trade Republic: angelo.fi/tr
The account is running on my wife's name though, but we'll gift our daughter the shares once she turns 18 and can open her own brokerage account
@@AngeloColomboFi thank you 🤗
What is your opinion about the broker flatex? I heard it's suitable for ETFs and more convenient than IBKR in Austria since it handles all of the tax matters for you.
It's great, just stick to saving plans, which cost 1,5€ max. Otherwise trading fees are high, but they are the only good and relatively inexpensive option (no account fees) if you want a broker in Austria that takes care of taxes for you. I wrote some details here: angelo.fi/atde
@@AngeloColomboFidear Angelo,
First of all thank you very much for your useful and super relevant videos. I live in Vienna and finally found a decent job. I plan to invest monthly into VWCE. I have flatex sccount. But it is completely in German. Is there any chance you can step by step show how to set up savings plan and recurring investment?
What is this tax return you speak of in Austria? And how much tax you pay for profit from ETF in Austria if you don't sell? My family moved here not long ago. Thank you!
That was simply from our yearly income tax return (I'm self employed, my wife is self employed next to her main job), where we got some taxes back (also cause we're parents now). Send me an email and I'll forward you some Austria related info: p2pinvesting.eu/contact
Angelo, you raised me a question. Do you think that investing less than 500 euros a month is not worth it in IBKR? I can only invest 400 euros at the moment, and I’m investing in 4 ETFs, but I found it costly doing by there.
There is no need to invest once a month. The frequency doesn't matter when the investments span decades.
It's definitely still worth it, I just tried to show in some calculations how much fees make up in % if you invest smaller amounts compared to average monthly market returns. I just wanted to show that in that scenario, if an option like Trade Republic or Scalable is supported in your country, the free saving plans could make sense until you have more to invest at once :)
@@AngeloColomboFi thank you Angelo
@@AngeloColomboFi Let me bother you with one more question, I have my pricing plan as IBKR Pro; Stocks: Tiered and supposedly would charge me only 1,25, however is charging me 1,91 sometimes only a few cents but most of the time 1,91. For example, I bought some shares o IWVL 2,3207 so a lower value as I invested in 4 different ETFs with 400 euros, I have paid 1,91 commission. I usually set it to be a few cents lower than the current price, so it will take cost less commission. What could be causing the discrepancy in commission charges? Could it be because it is a London Stock?
I am evaluating if I should keep following this strategy
@@Alexchii That is true, I could just do it every other month
Just a quick question since you are also based in Europe and you buy etf-s on ib. Did you ever get a prompt when trying to buy an etf on ib that you need a "KID" in a language approved for your country? I don't have a problem buying stock, but i guess the etfs are a problem where i reside. Just wanted to get your perspective on this, if you have it, that is.
Never had an issue with that on IBKR with ETFs domiciled in Europe. Did that happen to you? If yes, can you send me an example and the country you're based in?
Hm.. i think the problem is that i wanted to buy etf's based in the us. So that must be the problem, since in 2014 the eu put some restrictions in place because of the "KID" of the us based ETF's. If you are buying the european ones then you don't have this issue. I am from Slovenija, by the way. I wanted to buy the ftse-all world and the ishares s&p 500, but i have a red circle next to the ticker saying that i need the kid in the correct language to buy a certain etf.
Thanks for the clarification! The EU-domiciled versions VWCE and SXR8 work though, right?
Yes. Those do work. But i didn't buy any, not yet. Need to see which ones are actually good/interesting. Need to read more about them and everything related to it. Thank you for the fast reply, you are the goat mate.
Where is the Link to the Excel Sheet ?
It's in the description: angelo.fi/ibpricing
Yes, waiting too much is not worth it. I lost good opportunity this year as I was first waiting and then didn't have time as I got a new job. Lots of changes in my life and when I finally checked the charts, I realised I missed the train. 🤦
Check back in ten years and the couple months you missed here won't matter at all
As Alex said, don't worry about it. If you feel like the market had gone up too quickly, you could cost average and see if that makes a difference. Either way, I'm sure there will be other opportunities in the future.
I never understood differencing between lump sum investing and dollar cost averaging. To me they are the same thing. To be more precise, lump sum at the beginning of investment is just a part of dollar cost averaging, the very 1st contribution to the portfolio. Each successive contribution is much smaller, of course, but you get the point. It' not like you're going to lump sum and then forget it, you'll invest all of your extra income that you can invest over time. Otherwise, you're just adding unnecessary years to reaching your goal.
True, the video mostly addresses people with a larger sum of money, either at the start of their investment journey or for some other reason (inheritance etc.), who face this question.
Interesting strategy: DCA in bear market ( investor must have minimum knowledge about charts).
If a potential recession is coming, I prefer DCAing in the next months, until june 2024...
The next recession is always coming, the market factors that in and is forward-looking, so timing that correctly is a lot harder than you may think ;)
But your strategy could end up being right as well, we shall see!
less transactions less fees in some cases
Yup, definitely an advantage of going with a lump sum investment
I started investing July 1st and I have already put 120.000€ into the market, in small amounts of 5.000€ every 2-3 days. I don’t know if that was a lump sum or a DCA, but I guess it was a really short DCA because it was all done and dusted in less than 2 months 😅
Fortunately, I still have a lot more to invest though 😁
That was some intense cost averaging right there 😅 Kudos to you for getting started! 👌
@@AngeloColomboFi it was 😅 no doubt about that. I started buying a little higher, but managed to bring my average down while buying low during the August dips and managed to achieve a lower average cost. Still a long way to go though ☺️ although it will probably not make that much of a difference in the long run 😊