An option in uncertain markets.

31/10/2011

Over the last few months stock markets have been very unpredictable. News stories, including the US credit ratings downgrade and the continuing debt issues across the Eurozone, have added to uncertainty around the strength of any economic recovery. At times like this, regular investing may be a good option to consider.

WHEN’S RIGHT?

Given this uncertainty it’s no surprise that you may be thinking it’s best to wait until things become a little clearer before you consider investing.

However, by waiting for markets to calm you may be missing the real opportunity. As the great US investor Warren Buffett said: "Be fearful when others are greedy, and be greedy only when others are fearful."

But to time your investment decisions right you’d need to keep a constant eye on news and events. Even then the chances are you’d still not get it right every time.

REGULAR INVESTING MAY BE AN OPTION

One option that may be worth considering is regular investments. It’s as simple as it sounds, investing a set amount into your investments on a monthly basis.

This disciplined approach to investments enables investors to benefit from what is known as ‘pound cost averaging’. This means you buy more when the stock markets are low but less when they’re high. As a result you may not capture the full upside of the market but you’re likely to see smaller losses if markets fall.

This is especially evident when markets are at their most unpredictable.

DOES IT WORK?

To answer that, we’ve considered the period 30 September 2010 to 30 September 2011. The graph below shows what would’ve happened if you’d invested £100 every month over this period into our UK Index Trust versus investing £1,200 at the start.

At the end of the 12 month period, the regular investment was worth £1,195.17 while the lump sum investment was worth £1,134.22.

Performance of our UK Index Trust over the last five years

Source: Lipper (assumes income reinvested and is after charges) 

The example shows a time when regular investing worked out better, but there will be times that making a lump sum investment is the better option.

Past performance is not a guide to future performance.

INVESTING WITH LEGAL & GENERAL

With us, you can invest from as little as £50 a month into the majority of our funds. If you had invested every month from the start of the 2011 / 2012 tax year you could have invested up to £890 a month into a tax-efficient ISA.

Remember you should always consider ISAs and unit trusts as medium to long-term investments, ideally of five years or more. The value of your investment, and any income from it, may fall as well as rise and is not guaranteed. You may get back less than you invest.