5 great ways young and old can profit from regular investing

December 2022
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Investing regularly is one of the simplest ways to make a difference to your long-term wealth. By investing what you can afford on a regular basis – and forgetting about it – small amounts could soon turn into a valuable pot of money.  

This is how many people start investing in the stock market. Rather than committing a substantial lump sum in one go, they invest smaller amounts on a regular monthly basis.

Adopting this approach can impose crucial discipline and help to remove emotion from investing – both of which are vital for growing wealth over time.
 
As Ben Graham, father of value investing, said, “Systematic investing will pay off ultimately, provided that it is adhered to conscientiously and courageously under all market conditions.”

Here are five great reasons regular investing can add up.

1. It promotes healthy discipline  
Committing to investing your money regularly helps you form a good savings habit that is easy to maintain over the long term.

The longer you leave your money invested, typically, the greater potential rewards. So, the younger you start the better.

If you have children or grandchildren and want to help them financially in the future, setting up a regular way to drip-feed money into investments for them is perhaps the greatest gift you could give.

Should you simply want to invest for your own future comfort, it's good practice to invest a set portion of income each month. As your income fluctuates over your working life, adjust the amount you’re saving in line with the amount you're making.

No matter how little you manage to save each month, over time, your regular investment should build up. Before long, you should begin to see a sizeable pot start to accumulate – which is likely to be all you need to remain motivated to continue topping up your investments.

2. You should profit from the positive effects of compound growth
The most powerful yet underrated benefit of long-term investing is compound growth, which has the greatest impact on your wealth in the latest stages of your investment timeline.
 
To illustrate the point, 5% growth on £1,000 is only £50, but the same 5% growth on £1 million is £50,000.

So, the earlier you start to establish a saving habit the more you'll benefit from the amazing effects of compounding.

And, thanks to compounding, even the smallest of sums soon add up and can help make a big difference to your future wealth.

An example of the power of compounding

If you invested £500 a month for just five years – from your 16th to your 21st birthday – in a fund that delivered 5% a year and made no other contributions for the rest of your life, by your 60th birthday you’d have accrued almost £300,000 (The Calculator Site).

3. It can smooth out the ups and downs 
By drip-feeding your money into the markets, you'll end up buying shares or fund units across a range of different price points.

When prices go up, your money will buy fewer shares. But, when prices fall, your money will stretch further and buy you more stock, or units.

This is called “pound cost averaging” and it's important because it can help to reduce the effects of stock market volatility.
 
Ultimately, regular investing will mean that you'll end up buying at the average market price.

Plus, should the market experience a difficult period, as we have seen during 2022, regular investing can help cushion the impact.

Although there’s no guarantee of achieving better returns than you’d get from investing a lump sum, investing small sums regularly could help you benefit from highs and lows in the market. This helps cut down the risk of investing when the market is high.

4. It may mean you can bag potential bargains
Many people find it difficult to remove emotion from investing and so struggle to benefit from market downturns. Regular investing helpfully reduces this emotional element and helps you profit from the rash reaction of other investors. 

When stock market prices start to fall, timid investors might instinctively panic and avoid investing more money into the markets. Those who get spooked by market changes may pull their money out of the market or refuse to enter the market until things settle down.
 
This type of investor behaviour can drive prices artificially low, creating ideal conditions to buy into the market. Topping up your investment portfolio at these times means you're likely to enjoy larger returns when the markets rally.

The table below shows how investing £1,000 regularly every month during 2018 compared with a £12,000 lump sum at the start of the year. In both cases, dividends are reinvested and don’t take fees into account.

Investing during 2018 market downturn

  Lump sum Periodic
Market FTSE 100 FTSE 100
Market return -8.70% -8.70%
Total investment £12,000 £12,000
Investment frequency Annually Monthly
End investment value £10,951 £12,121

Source: Bloomberg

5. It can help remove the worry, making it easier to remain rational
Some people worry about finding the optimum time to invest their money. There’s rarely such a thing as “perfect” – and the same applies to investing in the stock market.

One of the big advantages with investing regularly is that it removes the near-impossible task of trying to decide when to invest or withdraw your money.
 
Trying to time the market is difficult. Often driven by emotion, it's a very risky short-term approach.

Instead, making a regular payment every month over the course of five years or more means you invest regardless of whether the conditions are considered “good” or “bad”.

If you need more convincing, even professional fund managers with substantial amounts of other people's money to invest will drip-feed the cash into the market over time.
 
If it's good enough for these seasoned professionals, it’s a great approach for you to adopt, too!

Get in touch
Regular investing is a powerful discipline that can make a substantial difference to your long-term wealth. We can help you identify what your dream future looks like and use financial modelling software to illustrate how regular investing can help you achieve your goals.

To find out more, email clientenquiries@lebc-group.com or call us on 0800 055 6585.

Please note
The information contained in this article is based on the opinion of LEBC Group Ltd and does not constitute financial advice or a recommendation to any investment or retirement strategy. 
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The information contained in this article is based on the opinion of LEBC Group Ltd and does not constitute financial advice or a recommendation to any investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.

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