It’s often assumed that you need thousands of pounds to be able to dip your toe in the investment world, but that’s no longer true. Thanks to digital investment platforms, like Wealthify, it’s now possible to build a decent nest egg for the future by investing little and often. Here’s why investing every month could help your investment journey.
It’s common practice in the investment world
Investing little and often isn’t something new – it even has a name: pound cost averaging. And despite being unnecessary jargon, it simply means ‘feeding your plan on a regularly basis’ which you can do easily by setting up a Direct Debit into your investment account and forgetting about it. One of the theories behind this method is that it removes emotions from the equation, that way you’re less likely to act irrationally and make snap decisions as an investor.
It makes investing affordable
Many people think you need to be loaded to start investing, but guess what? You don’t! By investing monthly, you can get started with as little as you want, and provided you remain invested over the long-term, you could end up with a decent pot at the end of your investment journey. At Wealthify, there’s no minimum investment for ISAs and General Investment Accounts, meaning that you can become an investor with as much or as little as you want, whether it’s £1 or £100,000.
It can pay off in the long run
Over the long-term, investing each month could help your money grow. Let’s show an example so you can see the power of drip feeding in action. Say, you invest £50 a month in a Stocks and Shares ISA. At first sight, £50 a month doesn’t seem a lot, but let’s imagine you feed your investment plan for 25 years. In total, you would invest £15,000, but more interestingly, you could end up with about £24,146 – that’s a £9,146 gain1!
It could help iron out market bumps
Investing comes with risk, and it’s important, as an investor, to find ways to mitigate the risk you take with your money. One way to do this is by investing monthly. How, you ask? Well, by contributing regularly and automatically, you’re typically feeding your plan regardless of market movements, meaning there’s money available to grab bargains during market downturns. And by buying investments that have become cheaper, you could potentially make a gain if markets were to bounce back. Although we can’t predict the future or where markets will be heading next, historically, markets have eventually recovered from crashes, so there’s every chance they will bounce back.
But the power of drip feeding doesn’t stop there! By investing monthly, what you’re really doing is buying at different prices, which could protect you from market drops. For instance, if you had invested in the FTSE 100 on the 16th February 2020, your investment would have lost 30% a month later2. Now say you had invested a smaller amount in February and invested again in March and in April. You could have been in a good position to take advantage of the dip and buy more investments with the same amount of money – you know what they say, every cloud has a silver lining.
It’s easy to invest every month
Investing every month is easier than you may think. With Wealthify, all you need to do is set up a Direct Debit into your investment account and we’ll do the rest, from picking your investments to making adjustments to your Plan to keep it on track with your investment style.
1: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £18,014. If markets perform better, your return could be £33,844. Values correct as of 03/04/20.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.