Monthly investing: the advantages and four funds to consider
Whether you’re worried about stock markets or the economic environment, are new to investing, or don't have a lot of spare cash, investing a lump sum can be daunting. After all, no one wants to invest a large amount of money, only to see it fall in value the next day.
If this sounds like you, taking a 'little but often' approach could be the solution.
Advantages of regular monthly savings
There are a number of potential benefits associated with regular monthly savings:
- Firstly, monthly savings remove 'timing' considerations from your investment decisions. Very few investors can successfully predict the direction of the market in the short-term, and getting it wrong can be costly, so why try?
- Regular savings also provide us with peace of mind: we can sleep at night, knowing that we are investing smaller amounts on a regular basis and that the fluctuations in the value of our portfolio will be less pronounced. Once you've set up your direct debit, you can sit back and relax for the rest of the tax year.
- You get 'pound cost averaging'. When we invest the same amount on a regular basis, we simply buy more when an investment is cheaper and less when it is more expensive. For example, a £100 investment into a fund with a share price of £5 could provide you with 20 units during the first month. Say the share price fell by month two, your £100 buys 25 units at a price of £4. You now have 45 units at an average price of £4.44.
- Finally, you can invest as little as £1, or as much as £1,667 per month into your ISA with Chelsea and it can be taken directly out of your bank account. This means it can become one of your regular monthly outgoings - only instead of paying a bill, you are saving towards your future.
Four fund ideas for monthly savings
I hate to mention the 'B' word, but the ongoing Brexit shenanigans are an excellent example of how monthly savings into a UK equity fund could be an option if the uncertainty has put you off investing recently.
FP CRUX UK Special Situations is a newly launched fund that you may like to consider. While the fund is only six months old, the manager, Richard Penny, is well-known to many Chelsea investors as he previously ran the L&G UK Special Situations and L&G UK Alpha funds. More details can be found on page 28 of our October 2018 Viewpoint magazine.
Monthly savings tend to work well in the riskier markets of Asia and Emerging Markets – due to the effect of pound cost averaging mentioned above.
Fidelity Asia Pacific Opportunities and Lazard Emerging Markets, which are on the Chelsea Selection, are worth a look. Both regions have suffered in the past few years as the US dollar has been strong and President Trump has been threatening a trade war with China. However, some commentators believe the Greenback has now peaked and the trade war could be avoided. More information on the Fidelity fund can be found on page 27 of our March 2018 Viewpoint magazine.
Talking of America, the US stock market has enjoyed a decade of rises. Having fallen along with other global markets just before Christmas, the Dow Jones Industrial Index and S&P 500 index are now back close to their all-time highs. If you like the US, but don't know how long the good times will last, you could try monthly savings here too.
One of Chelsea's long-time favourite US equity funds is AXA Framlington American Growth. Managed by Steve Kelly, it has been on the Chelsea Core Selection for a number of years. Steve looks for innovative companies that have unique brands and intellectual property giving the business competitive advantages and helping them to grow into market leaders.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius's views are his own and do not constitute financial advice.