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Should you carry on investing in a sinking fund that is sinking?

Mingers, John, Parker, Kim T. (2010) Should you carry on investing in a sinking fund that is sinking? European Journal of Operational Research, 207 (1). pp. 508-513. ISSN 0377-2217. (doi:10.1016/j.ejor.2010.04.014) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:24345)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided.
Official URL:
http://dx.doi.org/10.1016/j.ejor.2010.04.014

Abstract

Many people invest regularly in sinking funds that track stock market indices. When stock markets themselves sink significantly, as in the current credit crunch, investors face a decision as to whether they should continue paying into a falling fund, or switch payment to a risk-free deposit account until the market recovers. Most financial advice is to keep investing on the grounds that as the unit price falls more units can be purchased and that this is ultimately beneficial (dollar-cost averaging, DCA) However, most academic studies show that DCA is sub-optimal, at least to a lump sum strategy. In this paper we consider a specific, tax-free fund – the Individual Savings Account (ISA). We demonstrate, both analytically and numerically, that in a situation of perfect information a stop and restart policy can beat DCA. From these results we test some heuristics that could be used by an everyday investor under real-world conditions of uncertainty and volatility.

Item Type: Article
DOI/Identification number: 10.1016/j.ejor.2010.04.014
Uncontrolled keywords: Investment analysis; Dollar-cost averaging; Index-linked funds; Stop and restart
Subjects: H Social Sciences > H Social Sciences (General)
Divisions: Divisions > Kent Business School - Division > Department of Analytics, Operations and Systems
Depositing User: John Mingers
Date Deposited: 28 Apr 2010 13:57 UTC
Last Modified: 16 Nov 2021 10:02 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/24345 (The current URI for this page, for reference purposes)

University of Kent Author Information

Mingers, John.

Creator's ORCID: https://orcid.org/0000-0002-4102-4696
CReDIT Contributor Roles:

Parker, Kim T..

Creator's ORCID:
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