In this overview of regular investments, we consider the benefits of targeting money towards getting a profitable return. There are different types of investing which do not involve handing over a lump sum, and some of these can be done over a period of time. The question for each individual is identifying an amount and timeframe that suits you.
Many of us already invest without fully realising it. Millions of people in workplaces, for instance, will have personal pension plans that are topped up by monthly employer and employee payroll contributions. These buy units at investment funds which have fluctuating prices. When markets do well, fund prices go up, meaning fewer units are acquired with each contribution. On the other hand, a market downturn will result in lower fund prices, meaning investors are able to buy a greater number of units with the same expenditure.
‘Pound Cost Averaging’
By adopting a regular investment approach, it is a good idea to adopt the ‘Pound Cost Averaging’ theory. This means buying more investment units when prices fall and vice versa. This helps even out volatility in global equity markets because regular investments will average out and help you reduce your average purchase cost in the longer run.
Taking the emotion out of investing
Regular investing is a good way of dedramatising decision making, which can often be an emotional experience during periods of market turbulence. An inexperienced investor may feel nervous around the timing of investing during a downturn, but by thinking long-term, you can feel less stressed about when to enter the market, because investment returns are guided by time and not temporary blips. This makes decision making more objective and less impulsive, thus avoiding the stampede to buy or panic sell.
Regular investing and building wealth over the long term
If you have an eye on the long term, a regular investment strategy is a prudent way of accumulating money. It mitigates market-timing risks and results in automated wealth consistency, whilst pound-cost averaging reduces the average amount paid per share.
Saving a specified monthly amount is a good, stress-free way of imposing financial discipline and realising specific life goals, such as a deposit for a home or helping kids through university. Much research has suggested that regular systemic investing is a serious practical strategy for establishing long-term security.
Regular investing with a lump sum
Those able to regularly invest with a lump sum may find that it reaps dividends, particularly when a volatile market is on the up. The process of dividing significant sums into portions to be periodically paid over three, six or 12 months, is called phasing’ and may appeal to cash-rich investors with a strategic plan.
An investor willing to pay a lump sum of £150,000, for instance, might choose to allocate £25,000 each month for half a year rather than invest the whole amount upfront. Someone in this position might identify a lump sum payment as an immediate way to take advantage of a benign market and optimise returns.
Automation and budget accessibility
When considering payments, it is worth factoring in what can easily fit into a household budget. You might find a minimum entry as low as £25. The automatic approach eliminates the need to execute transactions manually whilst preventing money sitting untouched as ‘cash drag’.
Long-term compound growth
Be sure to maximise your compound growth. By pursuing a long-term strategy, you will spend a long time in the market, striving to generate constant returns on earlier gains. This will speed up your overall wealth accumulation via reinvested dividends.
Get the right advice
It is important to research the investment markets and their prospects going forward. This is where independent professional advice can really add value. If you are investment planning in Cheshire and Oswestry, book an appointment with local specialists Hartey Wealth Management today to review your options and get tailored advice, via our contact form.
