How Regular Investing Works

VIDEO: Should you invest a lump-sum or small, regular amounts? We're back at the investment board to look at the pros and cons 

Holly Black 6 November, 2020 | 11:25AM



Holly Black: Welcome to the Morningstar Investment Board. I'm Holly Black. Today, we are talking about regular investing or regular saving, whatever way you like to talk about it. It is one of the two main ways that you can put money into the market. So, the most obvious way, perhaps, is with a lump sum. You just put it all in on one day. But there are risks with that, because what if the value of your investment falls the very next day? Regular investing can be a bit easier. You set it up with your fund supermarket; a set amount of money each month goes into the funds or stocks of your choice. It's like any other direct debit in that way, the same way you pay your mobile phone bill or your mortgage, and it takes a lot of the stress out of investing because you don't have to think about it.

Well, that's a theory anyway. So, let's look at how that plays out in practice with three case studies. So, we'll have first minute Fiona, first thing Fiona. She's a nice early bird. She gets things done. We will have Steady Eddie who takes a sort of steady approach to life. And let's have last minute Lucy who leaves everything, as you might have guessed it, to the last minute. Now, let's imagine these three investors each have £10,000, and they each pick the same stock to invest in, but they do it in very different ways.

So, we'll look at a tax year. We'll also try and look with a pen that's working. So, that would be April the 6th to April the 5th – one year, and let's pretend our stock starts at 100p. Maybe it starts the year going up. Maybe there's a global pandemic. Maybe there's been a sort of bumpy recovery and we finished the year at 110p. So, along the way we hit high of 130; we hit a low of 50p; we went up through 70p and through 90p.

So, first thing Fiona put all of her £10,000 in at 100p. By the end of the year, she had gone up 10% with her investment because that's a difference between 100p and 110p. So, she's up 10%. She's pretty happy with that, feeling good about life. She's got £10,000 now, more money to invest next year. Well done, Fiona.

Last minute Lucy kind of locked in. This wasn't through any skill of her own. It was just because she had a dog to walk and kids and loads of stuff going on. It was a busy year at work. So, she didn't get around to investing until here, and then she put all of her money in at once. So, she actually ended up with greater gains than Fiona. So, she's up from 90P to 110p. Her money grew by 22%. She's ended up with £12,200, but it was all very stressful because she had to remember to do that before the end of the tax year and get around to it.

And Steady Eddie, he's a clever chap. He set up a standing order with his fund supermarket and these five intervals through the year he invested £2,000 a time. That means his gains were all different. So, this bit of the money – the bit that went in at 100P grew by 10%. The bit that went in at 130p didn't do so good obviously. This bit went up 120%. All told though, even though he's invested at all different points, he's bought more shares with his money when they were cheapest. He's bought fewer shares when they were at their most expensive. And that works out to give him a steadier ride overall when he hasn't had to think about it. He could just focus on stockpiling toilet rolls during this time rather than worrying about when he was going to put his money in the market. And Steady Eddie has ended up, up 36% at £13,600.

So, it's just an example of how regular investing works.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor,


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