Little and often for a greater reward
In the world of investment, timing is everything. But, despite claims to the contrary, no one can predict what the market will do and when. This makes it difficult to decide, not only when to invest, but also when to pull out. However, by saving regularly, investors can benefit from what is known as 'pound cost averaging'.
Compared with putting a large lump sum in the market at a single price - which may or may not be the top of the market - regular saving mitigates the risk by putting in smaller sums at a variety of prices.
In a rising market, regular savings would underperform the growth of a single lump sum as the later investments would miss out on the early growth. However, in a volatile or falling market, the opposite is true. Later investments buy in at lower or alternating prices and therefore gain more when the market finally rises.
Regular saving can also be a deceptively easy way to build up a lump sum. Putting aside £50 or £100 a month can be achieved with a minimum of sacrifice - and will quickly grow as the months pass without you even noticing what is going on. It can also be a convenient way to dip your toe into equities.
With only smaller amounts going in each month, the short-term ups and downs of markets will have less impact on your portfolio overall.
Mark Taylor Cert PFS, IM Financial Solutions Ltd.
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