Drip feed investment can be more beneficial than lump sum investments, experts claim

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Written by Ray Clancy

Tuesday, 13 April 2010 08:23

Drip feeding your savings investments over the course of a year can be more beneficial as they will be less exposed to market volatility, it is claimed.

Good things come in small packages, especially when it comes to monthly saving which is a particularly effective habit for those who want to make use of their ISA allowance but would prefer not to part with a lump sum, according to experts at Fidelity International.

Investors who save regularly can capitalise on ‘pound cost averaging’ where the effect of market changes on the value of your investment is effectively smoothed out and no matter how small the investment, committing to regular saving over the long term can build a sizeable pot.

‘A monthly investment plan can be a good way to maintain a long term investment strategy and is a useful way of being disciplined about saving for the future. And you may be surprised at how much even small amounts can grow over a number of years,’ said Rob Fisher, head of UK Personal Investments at Fidelity International.

He gives as an example an investment in a fund that grew by 6% and had a management charge of 1.5% a year and no initial charge, then for £50 a month you would have £7,559 over 10 years, £19,406 over 20 years and £37,969 over 30 years.

For a £100 monthly saving it would be £15,119 over 10 years, £38,812 over 20 years and £75,938 over 30 years. And for £250 a month the figures work out at £37,799 over 10 years, £97,031 over 20 years and £189,846 for 30 years,

‘This can also be a very effective investment strategy for ISA investors who want to make full use of their ISA allowance but either don’t want to or can’t afford to part with a large sum of money in one go,’ added Fisher.

A regular saver could end up with an investment that is worth more than that of the lump sum investor, even though the strting price, finishing price and average price are exactly the same.

‘It is understandable that not all investors will be able to part with the maximum ISA allowance in one go, however, this does not mean that you can’t take advantage of the full allowance on a monthly basis. Drip feeding your investments over the course of the year can, in fact, be more beneficial since it is less affected by market volatility,’ said Fisher.