You are here: Home - Investing - Experienced Investor - News -

Why drip feeding your money is better than investing lump sums

0
Written by: Paloma Kubiak
07/03/2016
Drip feeding your investments could help you achieve nearly double the return than when trying to time the markets, and here are the numbers to prove it.

Looking at three hypothetical investors – ‘Steady Eddie’, ‘Bad Timing Bob’ and ‘Good Timing Gary’, Fidelity International analysis found there’s a difference of £113,000 in the returns achieved based on their investment habits.

Steady Eddie: invests regularly

The analysis shows that Steady Eddie, who began investing regularly in the FTSE All Share in 1986, putting in £1,000 a year during that decade and bumping up his annual investments by £1,000 each decade until January 2016, would have seen his original investment of £82,000 grow to £233,800.

Bad Timing Bob: invests at the top of the market

Bad Timing Bob, who only invests in the FTSE All Share at the top of the market, is left with nearly half as much. Like Eddie, Bob saves £1,000 a year, upping his annual savings by £1,000 each decade, but unlike Eddie, he invested the money he saved in the FTSE All Share just before market downturns. As a result, Bob’s original investment of £82,000 would be worth £120,970.94. This is an increase of 148%, but it’s nearly £113,000 less than Steady Eddie.

Good Timing Gary: invests at the bottom of the market

He only ever invests in the FTSE All Share when the market is at its lowest, but he’s unable to match Steady Eddie. Just like Eddie and Bob, Gary sets aside £1,000 a year, increasing his annual savings by £1,000 each decade. His original investment would have returned £188,893.13 – nearly £45,000 less than Steady Eddie.

Time in the market better than timing the market

Tom Stevenson, investment director for personal investing at Fidelity International, said: “Bob, Eddie and Gary teach us some important lessons about investing. The first is obvious – good timing is better than bad. Unfortunately, we know that consistently effective market timing is nigh on impossible.

“The second, and more useful, lesson is that time in the market is better than timing the market. Over long periods, stock markets have tended to rise and that means that putting your money to work in the market and keeping it there has generated better returns even than those achieved by the best market timer. Even if you can pick your moments with skill, leaving your money idle while you wait for the right time to invest can seriously compromise your long-term returns.

Stevenson added that the most sensible approach is to stay invested and to drip feed your savings into the market month after month to benefit from pound-cost averaging – you buy more shares when prices are low and fewer when they are high as this allows your money to be compounded.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Autumn Statement: Everything you need to know at a glance

Yesterday Chancellor Jeremy Hunt made his first fiscal statement in the role, outlining a range of tax measure...

End of Help to Buy: 10 alternatives for first-time buyers

The deadline for Help to Buy Equity Loan applications passed on 31 October. If you’re a first-time buyer who...

Moving to an energy prepayment meter: Everything you need to know

As households struggle with the soaring cost of energy, tens of thousands of billpayers are expected to move o...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week