Is it better to make bigger investments yearly or smaller amounts monthly?
08 July 2021
Question by Jon
I have all the basics in place (emergency funds available, 2 pensions, etc..) I have a S&S ISA for me and my daughters Junior ISA. Currently I put £X/month in to each ISA pot and the plan was at the start of the year to then invest the pot into funds (so not to buy funds every month and keep fees minimal).
Started saving in the JISA in 2019 and come the big crash of March, lucky me decided to take that big chunk of savings and stick it in to a couple of funds.. currently showing a 28% increase in value 😊 I know I’m not going to make 28% every year (shame) but was a good lucky start I thought.
My questions though, is this the right way to grow the best investment for my daughter through buying in to a mix of investment funds each year? Am I missing out on potential compound interest just from having investments in funds?
This is for the long term investment minimum of 18 years, but should I sell the funds periodically if they are not performing and swap the funds around if needed every 3-5 years?
Thanks in advance for any tips/advice…
Answered by Josh Butten
Great to hear that you have the basics taken care of. It sounds like you were well positioned when the markets fell in 2020 and were brave enough to invest your cash savings - a bold move but a good decision with your 18 year time horizon.
Going forwards I would encourage you to consider a regular monthly direct debit to your ISA / JISA accounts, so that you invest every month, rather than accruing cash and investing a lump sum once a year. This will ensure that you invest little and often, catching the global markets at their highs and lows - rather than investing an irregular lump sum. Although I expect you will be buoyed by the recent experience of timing your investment well in 2020, research shows that this is very hard to do consistently. If you want to learn more about this approach, you could research ‘pound cost averaging’ and ’systematic investing’.
I am a big fan of simplicity, so you may be best served by using a simple managed fund solution and leave the heavy lifting to a single fund manager. Vanguard Lifestrategy is one of the more popular options for direct investors, but there are others to consider too. With a long time horizon you might feel comfortable to choose an 80% or 100% equity fund. This approach of buying a single fund is very different to researching your own stocks - but it’s a great way to achieve huge diversification and benefit from automatic rebalancing within the single fund. This approach suits a ’set it and forget it’ mentality - so that you can focus on enjoying time with your daughter!
It sounds like you’re using an ISA / JISA product which includes fixed costs per trade, which may be motivating you to invest larger amounts less often. If you follow these tips and move to a monthly investment basis, this would increase your charges, so as a regular investor you may be better served by a product with a simple percentage cost rather than fixed costs per trade. Again, Vanguard is a popular option and has ISA, JISA and Pension accounts - and their solutions score well on Boring Money’s review.
Josh is a co-founder at boosst, an independent financial planning firm that works with families across the UK - and currently the CISIs Financial Planning Firm of the Year. Josh specialises in helping families to answer their ‘big questions’; which is achieved by bringing together personal finance expertise with cashflow planning software.