Regular savings are a simple but effective way to invest

Investing regularly can help counter stock market volatility and build a substantial nest egg over time.

This content is more than 6 months old now, please visit the news area of this site for more recent content

  1. Rob Morgan

Not everyone has a large lump sum to invest, and for those that do it can be daunting to commit it all in one go – even though that can often be best. The sooner your money is invested the sooner it is working for you.

If you want to invest little but often, though, or you feel nervous about markets in the shorter term, there is an alternative: Regular savings. Through Charles Stanley Direct you can contribute smaller amounts to our Stocks and Shares ISA or Self Invested Personal Pension (SIPP) as and when you like or set up regular savings from your bank account.

Almost anyone has the potential to build a sizeable sum over time by investing small amounts regularly. The important thing is getting started, and the earlier you do the more time your chosen investments have to grow – and time can be an exceptionally powerful ally.

Time on your side

Take two investors, both investing for retirement in 40 years' time. One starts investing £100 per month right away, the other does nothing for 20 years, but then invests £300 per month. The investments chosen both grow by 5% per year after charges. At retirement, the first investor will have spent £48,000 on their monthly contributions and the second investor £72,000. Yet despite having spent much less, the first investor's retirement pot would be worth £152,252 compared to the second investor's £123,310.

Even if you don't have a multi-decade time horizon it's still possible to build up a significant sum by saving regularly. In addition, regular savings are flexible, so you can stop and start them as you wish or change the amount. You can also change where you invest to suit your views and the level of risk you want to take.

Counter volatility

By investing a given amount in a fund regularly you end up buying at different prices. Dips in the market, particularly in the early years, could even work to your advantage.

For example, if you invest £100 every month into a unit trust fund, the cost of the units for each purchase will depend on how the assets in the fund have performed. For example, if in month one the units cost 50p each you would get 200 units for £100 invested. If in the second month they are 54p each you would get 185 units for the same amount of money, but if they dip to 40p you would get 250 units. 

By investing monthly in chunks, rather than a larger lump sum in one go, an investor ends up buying more shares or units when prices become cheaper and fewer when they become more expensive. This can be a great way to invest because if you keep buying the market falls you could, over time, turn volatility to your advantage. This effect is known as 'pound cost averaging', and over longer periods it can help smooth out the highs and lows of the market; though there are still risks and with all investments, you could get back less than you put in.

Avoid the market ‘noise’

Another important aspect of committing to regular savings is that it takes away the decision making about when to invest. It removes concerns about timing the market, whether it’s expensive or about to fall, and enforces a healthy discipline of investing at all times – good and bad. If the market falls, you can ignore it in the knowledge you have committed to investing for a long period and your chosen investment has become cheaper to accumulate. By stripping out the constant ‘noise’ of the market and economic news from your thinking it can also make life a lot easier!

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

More from author

  1. Rob Morgan

    Investing and the war on plastic

    Date: 22nd Jun 2020 10:59am

    The war on plastic will require huge changes from the point of design and manufacture...

  2. Rob Morgan

    The rise of giant tech stocks means greater ‘concentration risk’ for investors

    Date: 22nd Jun 2020 10:59am

    The meteoric rise in tech stocks has resulted in an imbalance in certain market indic...

  3. Rob Morgan

    June's most widely bought and sold funds

    Date: 22nd Jun 2020 10:59am

    We reveal the funds most commonly bought and sold by customers using Charles Stanley ...

Most read articles

  1. Regular savings are a simple but effective way to invest

    The rise of giant tech stocks means greater ‘concentration risk’ for investors

    Date: 22nd Jun 2020 10:59am

    The meteoric rise in tech stocks has resulted in an imbalance in certain market indic...

  2. Regular savings are a simple but effective way to invest

    China will leapfrog the US in smart cities as well as 5G

    Date: 22nd Jun 2020 10:59am

    China leapt ahead of the US in its 5G infrastructure technology – and it’s about to d...

  3. Regular savings are a simple but effective way to invest

    Central banks continue to prop-up markets

    Date: 22nd Jun 2020 10:59am

    The tsunami of money has been unprecedented and is the main reason equity markets hav...

Investment involves risk. You may get back less than invested.