 Should you stop investing in a sinking fund when it is sinking?John Mingers and Kim T. Parker European Journal of Operational Research, 2010, vol. 207, issue 1, 508-513 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. Keywords: Investment; analysis; Dollar-cost; averaging; Index-linked; funds; Stop; and; restart (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:207:y:2010:i:1:p:508-513 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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