Stop Trying to Be a Financial Clairvoyant
Peter McGahan
Monday 13th July, 2026.
THERE are two types of investors I worry about - one who thinks they can predict the market and one who knows they cannot, but waits anyway, hoping Donald Trump keeps his mouth shut and his fingers off the phone, so the right time will arrive. Good luck with that.
Both can end up in the same place: cash on the sidelines, a pile of newspaper cuttings, three forecasts from people who sounded confident, and no actual investment plan. That’s like standing at the side of a swimming pool for 10 years waiting for the water to become less wet.
Pound-cost averaging sounds much cleverer than it is. It simply means investing a fixed amount at regular intervals, usually monthly, regardless of what the market is doing. When prices are lower, your money buys more units. When prices are higher, it buys fewer. Over time, this smooths the average price you pay and, more importantly, removes the monthly theatre of asking: “Is now a good time?”
That theatre is expensive. MoneyHelper sensibly encourages regular automatic saving because the habit matters; a standing order or direct debit removes the need to make the same decision over and over again.
Pound-cost averaging is not a magic return enhancer. Vanguard’s research comparing lump-sum investing with cost averaging across markets from 1976 to 2022 found that lump sums won in most scenarios, broadly around two-thirds to nearly three-quarters of the time. The reason? If markets tend to rise over long periods, money invested sooner has more time to participate. Money waiting in cash is not compounding in the market.
Vanguard’s UK analysis also makes the uncomfortable point that lump-sum investing beats cost averaging even in many weaker outcomes, but not in the worst ones. In the worst 5 per cent of scenarios, cost averaging did better because less money had been exposed just before the fall. That is the real trade-off.
Lump sums usually have the return advantage. Pound-cost averaging has the regret advantage.
For most working households, the argument is almost academic. They do not have a grand lump sum sitting in a drawer. They have a monthly salary, bills, children, cars, holidays, boilers that hear Christmas approaching, and whatever is left after that. For them, monthly investing into a pension or ISA is not second best. It is the backbone of sensible wealth building.
The danger is that people hear “lump sums usually win” and misunderstand the lesson. It does not mean waiting until you have a lump sum. It means money intended for long-term investment should not be held back indefinitely because you are waiting for a bell to ring at the bottom of the market. There is no bell. There is usually just noise, fear and a very convincing person on television being wrong, but with excellent posture and a reassuring smile which won’t be there in a few years.
The FCA’s Financial Lives work shows the scale of the problem. Around seven million UK adults have £10,000 or more in cash savings and may be missing out on the long-term benefits of investing. Among not-advised adults with £10,000 or more in cash and no investments, many say they do not invest because they do not know enough, feel overwhelmed by the options, or need support. That is not stupidity. It is decision paralysis.
Morningstar’s latest “Mind the Gap” work shows what happens when investors do try to be clever. Over the 10 years to December 31, 2024, the funds studied returned 8.2 per cent a year, while the average investor earned 7.0 per cent. The gap came from the timing and size of investors’ own buying and selling decisions. In plain English, the fund did better than the humans using it.
So, the decision should not be framed as: “Can I predict the next six months?” You cannot. The better question is: “What will I actually stick with?”
If you have a lump sum, a long-time horizon, proper cash reserves, no expensive debt, and a diversified portfolio which suits your risk tolerance, the evidence favours investing promptly. If you are so nervous that a sudden fall would make you panic, lose sleep, or abandon the plan, drip-feeding can be perfectly sensible. Not because it is expected to make more money, but because it may stop you doing something worse – ie: nothing.
The perfect investment entry point is a lovely idea, like a calorie-free sticky toffee pudding. Sadly, both belong in luck.
The aim is not to outguess the market. It is to stop outguessing yourself.
I will be creating a guide to investing, so, if you would like a complimentary copy, please email info@wwfp.net.
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser firm, Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
