Regular Investing – Simple, Effective, Very Profitable

Fri 06 May 2022

By Ruairi Dennehy

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Portfolio building

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Here’s where we are right now:

cash

  • 7% inflation
  • Abysmal savings rates
  • Volatile global stock markets
  • Escalating geopolitical tensions
  • A clueless nervous Federal Reserve (and central banks generally)
  • China’s major cities in lockdown

So we understand why many investors may be sitting on the sidelines at this moment. But for investors who have long time horizons, have adventurous attitudes to risk, or quite simply get FOMO (Fear Of Missing Out), then it isn’t all doom and gloom.

A common strategy, and one we have been successfully deploying with advisory clients of Dennehy Weller & Co since the 1980’s, is drip-feeding into the markets as a long term strategy, with regular monthly investment.  (This contrasts with what we officially call Phased Investing, when we re-invest cash lump sums over, say, 12 months to sidestep short term market volatility)

You don’t have to think about market timing, which is impossible to get right consistently.  And as you aren’t constantly watching the markets it gives you more time to devote to other things – like life!  After all, investing is a means to an end, not an end in itself.

No Timing Pressure, No Stress

One of the beauties of this automated strategy of regular investing is that, until it explodes upwards, little judgment is required. The longer the market goes sideways and down the better – you buy more and more, cheaper and cheaper, increasing your profit potential.

A recent study by Quilter found that of those who had more money as a result of spending less during lockdown, more than a third (36%) would put it in a cash savings account while the same proportion (36%) would leave it sitting in their current account earning no interest. Sadly, with the best easy-access savings rates currently sitting below 2%, savers are losing out, big time.

Who This Works For

The strategy is ideal for:

  • Anyone with large sums on deposit which are being eroded by high inflation...
  • ...but attracted to stock market potential IF they can avoid putting their capital at undue risk.
  • Anyone with regular surplus income from month to month.
  • Patient savers or investors with long term investment horizons (10 years+).
  • Similarly, parents or grandparents investing for a child.

Ideal For Young People And ISA Investors

This is a perfect strategy for young people starting to invest, and it really isn’t too difficult.

Good savings ideas must be simple, effective, practical and flexible.  This investment approach is all of those things.  Plus, it is also a great way for young people to learn about investing.

With the minimum investment on many platforms just £20 per month, regular saving has never been more accessible for young people.

Most ISA investors wait until towards the end of the tax year to make a lump sum investment.  Often this is in a rush, which doesn’t make for rational decision-making on fund choices. It makes much more sense for ISA investors to make a long term commitment via monthly savings.  You don’t need to worry about the immediate market timing, nor the ups and downs over short periods once you have started investing.

Which Investments? 

You want to buy into a fund which falls into one or more of these categories:

  • Cheap (UK)
  • Beaten up (UK Small cap/Asia)
  • Very unpopular or widely detested (China)
  • Supported by a long-term theme or need (India/Global Emerging Markets/Healthcare)

Here are a few ideas:

On the other hand, you also have our range of Dynamic Portfolios that you can use as your chosen long term investment strategy. The benefit of using our ready-made Dynamic Portfolios is that we do all the hard work for you, you don’t need to second guess what funds or sectors to pick and when to buy them.  But you would need to review these every 6 months, whereas the above cherry-picking (not what we normally recommend) works with this monthly investing.

 

ACTION FOR INVESTORS

  • Sensible investing isn’t a get-rich-quick scheme...
  • ...it’s underpinned by process and discipline.
  • Over time, dripping into the markets is a sensible disciplined strategy for many savers/investors...
  • ...providing you are patient.

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Portfolio building

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