I read this article of the IFA Hargreaves Lansdown, on the benefits of regular savings:
[http://www.hl.co.uk/news/articles/features/how-just-5-a-day-has-grown-to-over-275,000-over-25-years?]
It shows how £150 a month over 25 years has become £275,000, when the £150 a month was invested in a fund (unit trust).
The article shows that £150 a month, over 25 years = £150 x 12 x 25 = £45,000 total paid in.
The investment would be worth £276,261
So shows the benefit of drip feeding into a fund. I want to show this in reality over a 12month period.
Regular investment allows you to invest in a fun each month using a fund that allows monthly investment. This then allows one to build up an investment fund and can help to smooth out fluctuations in share prices over time.
For example, let’s say one has £1,800 to invest. We’ll compare buying £1,800 worth of “generic fund” called Asad Investments PLC in January or investing £150 per month over the whole 12 month period:
Month Share price (p-pence) No of Shares (bulk) No of Shares (monthly)
Jan 100 1800 150
Feb 90 167
Mar 105 143
Apr 110 136
May 100 150
Jun 90 167
Jul 80 188
Aug 95 158
Sep 95 158
Oct 98 153
Nov 105 143
Dec 104 144
1800 1856
what this shows, if one bought in January @100p that would equate to 1800 shares
If one bought monthly, the £150 each month the total shares bought equate to 1856 shares.
Wealth in Dec: Bulk = 1800 shares x £1.04 = £1872
Wealth in Dec: Monthly = 1856 shares x £1.04 = £1930
invest a monthly sum of £150 into a fund/share. In a month of falling markets, you will get more shares for your money. If the market rises, you will purchase fewer shares, but your existing shares will also be worth more. Over the long term, this means that the average price of the shares you hold may in fact be lower than the average share price for your investment period, since you have bought more shares when the price is lower and fewer when it’s higher. A crude example that shows over the long term one can accumulate securities by taking advantage of market volatility, and potentially gain greater wealth.