When it comes to investing your money, making small regular investments can provide more benefits than investing a lump sum. Through regular investing, you can invest a small amount into the markets every month.
Investing little and often is a great habit to develop and instil in younger family members, too. Instead of saving up a chunk of money to invest in one lump sum, investing this way can make a significant difference to your overall levels of wealth over the longer term. One big benefit of investing a small regular sum is that, instead of saving your cash until you have a lump sum, you’re putting your money to work straightaway.
Even with the current rising interest rates, leaving money sitting in a bank account over the longer term can be less profitable than investing it in the market.
1. Form a healthy and potentially profitable habit
Investing regularly helps you to build good habits and keep you committed to a long-term investment strategy. No matter how little you put away, over time, your steady and regular investment should build up.
A good way to start is to invest a fixed portion of your income every month. Then, as your income fluctuates over your working life, simply adjust the amount you’re saving in line with the amount of money you are making.
2. Limit your exposure to one-off events and benefit from pound cost averaging
Global stock markets can be unpredictable and volatile. They move up and down frequently, sometimes sharply. This is why, when investing in stocks and shares, it’s important to take a long-term view – usually at least five years.
Saving regularly means you can benefit from “pound cost averaging” and this helps smooth out the market’s peaks and troughs. Although there’s no guarantee of this, the theory is that when markets are low, you acquire more shares or fund units for your money, and when markets are high, you acquire less.
So, by drip-feeding your money into an investment over a period of time, you will inevitably end up investing across a range of prices. In effect, you should pay the average price over a fixed period, which can help to reduce your risk and, potentially, provide smoother returns.
3. Reap the rewards of compound growth
Compound growth is one of the most powerful and underrated benefits of long-term investment.
Investing small amounts of money each month could mean you start investing sooner. And the sooner you start investing, the longer your money will be exposed to the growth potential of both being in the markets and from compounding.
The powerful effects of compound growth mean that even small sums add up and can help make a big difference later down the line.
As you might imagine, compounding has its largest impact during the latter stages of your investment journey; 5% growth on £100 is only £5, but 5% growth on £1,000 is £50.
So, if you want to reap the rewards of compound growth, start early, and establish (and maintain) a good savings habit.
4. Instils good investing discipline
Some people hesitate over when to invest money and attempt to time the best moment to buy in to the market. This approach is incredibly difficult and even seasoned fund managers don’t try to time the market.
In fact, professional investors and fund managers with large sums to invest will often drip-feed their funds into the market over time.
If it’s good enough for the experts, it a great approach for novice investors!
5. Pick up potential bargains
When stock market prices start to fall, many people panic. They will often sell their investments and, when spooked by market changes, many investors may refuse to re-enter the market until things settle down.
Because fear can sometimes drive prices artificially low, this is often the best time to buy into the market. So, adding to your investment at these times may mean that you enjoy larger returns when the markets rally.
If you find it difficult to remove emotion from investing and struggle to benefit from market downturns, regular investing can help by removing the emotional element of buying into the stock market.
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If you’re interested in finding out more about how you could invest your money wisely and potential profit from long-term growth through regular investing, we’re here to help.