Lump sum

 

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Lump sum

Describes a tax or subsidy that does not distort behavior. By using a tax (or subsidy) in an amount (the lump sum) independent of any aspect of the payer's or recipient's behavior, it does not alter behavior. Nondistorting lump sum taxes and subsidies do not exist, but are a convenient fiction for theoretical analysis, especially of gains from trade.

Lump sum

A sum of money paid in a single instalment.One of the questions frequently asked by novice investors is whether they should invest a lump sum in one go, or drip feed it into the market. There are two views on this. The Lump Sum argument is that the exact timing of your entry into the market doesn't matter that much because if you leave it in the market long enough the overall gains will be large enough to make marginal differences in the original cost relatively trivial.The Drip Feed argument is that the timing of your entry into the stock market matters enormously! If you buy at the top of a bull market and immediately before a bear market, you will suffer immediate losses. Drip-feeding averages your cost of entry over time, meaning that even if you don't buy at the best (lowest) price, at least you won't buy t the worst (highest). The most sensible course of action may lie between these two extremes. If the market is high at the time you intend to invest, and there is lots of comment in the newspapers about an impending correction, you might decide to be cautious and drip-feed your money in. Conversely, if the market is low, and there is lots of 'value' in the market, you might decide to invest in one go, not forgetting to choose your companies with care.

Lump sum

A large one-time payment of money.



Lump sum

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Further Suggestions

Nondistorting lump sum


 
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