Slow and steady wins the race is an age-old adage that couldn’t be more true of investing. One of the most common misconceptions about investing at large is that you need a large lump sum to get started and that chasing huge returns is the name of the game.
Neither could be further from the truth for the majority of investors. The rules are changing, the industry has been democratised and now those with relatively modest personal savings can get themselves into the markets to benefit from long term, sustainably diversified investing.
Grow your investment over time
For those without access to a huge lump sum, or those who want to invest in a more measured, controlled way, topping up their portfolios little and often has become a popular method.
This couldn’t be easier to do. You can set your direct debit up within the Moneyfarm app, choose the date it will leave your account and the amount you’ll contribute. This then automatically goes to your chosen portfolio and is invested by our team of portfolio managers in a way that is tailored to your investor profile.
The benefits of regular investing
Investing via direct debit has some real financial benefits as well as being incredibly easy for you.
Pound cost averaging
When you invest little and often, the cost you enter the market at is averaged over time. Drip-feeding into the markets means you average out the price of the total investment over time, often meaning you end up paying less, which in turn boosts your returns.
We recently wrote a full rundown of the benefits of pound cost averaging, a strategy that’s as popular as it is recommended by experts. Particularly in times of volatility, pound cost averaging can help smooth out the risk inherent in topping up an investment portfolio.
Your exposure to market volatility is lowered when you invest little and often. Markets move around all the time, as we’ve seen to an extreme degree in the wake of COVID-19. Movements like we saw in March and April are rare, but extreme volatility is something most investors try to avoid.
By investing regularly, you avoid taking a gamble on a particular period. Essentially, investing little and often removes the incredibly difficult challenge of ‘timing the market’, or investing a lump sum just before the valuations spike. Instead, you trust that markets will, as they tend to, grow consistently over the long term.
Slow and steady
With a direct debit, your investments can grow steadily over time. By dedicating a proportion of your monthly income to a portfolio each month, you build up your exposure to the markets and increase the possibility for returns over a time period that you can afford.
For most of us, it isn’t possible to invest a large lump sum in one fell swoop, but contributing a smaller amount each month is a lot easier to manage. Add this to your monthly budget, get into the habit of investing and watch your wealth grow over the long term as you go about your career.