Have savings? Don’t invest before you know these three approaches

Episode summary · Based on the recording of the conversation

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In brief

This episode looks at how to invest savings you already have: all at once, in equal monthly instalments, or by buying on dips from a reserve set aside in advance. Kliment Robev and his co-host discuss who each of the three paths suits and what happens when the market turns down. In Kliment’s view there is no single right answer – the difference lies less in returns than in how the investor will feel along the way.

Key points

Kliment explains that consultations start by clarifying three things – how much there is to invest and how it will be topped up, when the money will be needed and how big a fall the investor can bear – and that with a horizon of around two years he sees money-market instruments and short-term government securities as more suitable than equities.
He stresses the need for an emergency fund covering a few months of expenses and for genuine readiness for downturns, noting that almost every other year the market has a correction of around 10% within the year, which is a normal part of how it moves.
His co-host points out that, statistically, investing a lump sum wins in roughly three cases out of four because the market rises most of the time, but it requires readiness for a deep fall – someone who bought the S&P 500 in October 2007 went through a drop of almost 50% and waited about five years to break even.
Kliment explains why the two of them see broad indices such as MSCI World and the equal-weighted S&P 500 as alternatives given the current concentration of technology companies in the S&P 500: he expects a “sobering up” around artificial intelligence sooner or later, when the equal-weighted index should prove more defensive, though it would lag if the boom continues.
On regular monthly contributions he tells the story of a young woman to whom he showed, with a compound interest calculator, the effect of small instalments over a long horizon and the low fees of index funds, warning that the biggest mistake is stopping contributions during a fall, exactly when averaging works hardest.
For the third path – a balanced portfolio with a reserve for buying on dips – he sets out an example plan with three tranches deployed when the market falls 15%, 25% and 35%, and says that by temperament he himself prefers the second and third approaches: regular contributions to broad-index ETFs and building positions gradually in companies the market has temporarily punished.

Chapters

Context

Episode 7 of season two of the podcast “Пари и посоки” (Money and Directions). It was prompted by one of the most common questions in consultations – how to put accumulated savings to work: all at once, in parts or after a market fall – at a time when the two hosts describe the market as overheated and heavily concentrated in technology companies.

Views reflect his position at the date of publication and are not investment advice. Regulatory information