Drip-feeding your investments into the market provides a useful discipline and can help level out the highs and lows.
Investment: Steady Accumulation | 02 April 2015
The FTSE-100 index has been testing the rarified air above the 7,000 mark, setting record highs along the way. That may make some would-be investors nervous, in case the equity market is due for a fall, but you can help neutralise the risk of mis-timing your investment by regularly drip-feeding your money into the market.
Market timing is an elusive skill that even the most experienced or professional investors cannot hope to get right all the time, or indeed very often. No-one knows what the market will do next week, next month or next year, and so successful long-term investing is about time in the market, not about timing the market.
More when it's cheap
If, instead of investing a lump sum you invest smaller amounts every month, market volatility can play to your advantage. The 'pound cost averaging' effect of drip-feeding means that you are buying more of the market when it's cheap and less when it's expensive.
* Total value of units’ shown after 12 months. These figures are examples only and they are not guaranteed – they are not minimum or maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this. Drip feeding your investment does not guarantee you a higher return than making a one-off payment.
This smooths out the market's ups and downs, giving you the average price over the period of your investment. Along with being in the market throughout, and therefore not missing its best days, this can generate superior returns in the long run, as the accompanying chart illustrates.
Another benefit of drip-feeding is that it instils good, regular savings discipline, whereby instead of trying to pinpoint the best time to invest, it helps you to avoid the bad habits of delaying an investment decision or buying shares only when the market is rising. The result is that, whatever the markets might be doing, whether saving for your own retirement, or on behalf of children or grandchildren, you can build up a significant sum over time.
For more information, visit St. James's Place Wealth Management.
* The value of an investment will often be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
* FTSE International Limited (“FTSE”) © FTSE 2015. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.