Hargreaves Lansdown’s head of research believes that making monthly contributions is more attractive on a practical level, since investors do not have to commit a lump sum, as well as from a valuations perspective. "When you’ve got a very long time horizon, it’s a no-brainer – you’ve got to go for a regular top-up plan," said Dampier (pictured).
"You’ve got the compounding effect, and it means you don’t have to put all of your money in at a potentially risky time."
"By doing it, you’re also forcing yourself to buy no matter what the newspaper headlines say. Although this is a daunting prospect, it is often a saving grace."
"If you’re invested in something that’s quite volatile like emerging markets or smaller companies, you’re always going to have blips; if you buy after the market falls, you buy it at a cheaper price, which makes a big impact over the long-term."
Dampier says a regular savings plan works particularly well when market volatility is high, which is supported by figures over five years. According to FE data, £10,000 invested into the average UK Smaller Companies fund five years ago would now be worth £12,839.
However, if the same amount had been invested more gradually, with an initial lump sum of £1,000 and a monthly top-up of £150, it would now be worth £13,642.
Impact of monthly savings plan on sectors over 5-yrs
| IMA Sector | £10,000 lump sum (£) | Monthly savings plan (£) |
| UK Smaller Companies | 12,839 | 13,642 |
| Europe ex UK | 9,679 | 11,155 |
| UK Equity Income | 10,990 | 12,314 |
| Sterling Corporate Bond | 13,177 | 12,470 |
Source: FE Analytics
A lump sum of £10,000 invested in the average IMA Europe ex UK portfolio five years ago would have lost money, but using the lump sum and monthly savings plan detailed above, it would now be worth £11,155.
Dampier thinks reading too much into the macro is one of the biggest mistakes an investor can make – particularly when investing for the long-term.
This is in part why he is opposed to the notion of flexible pension plans, which allow investors to take out their money in the lead-up to their retirement.
"It doesn’t matter what the markets are doing tomorrow or next month; if you’re invested for the long-term, you don’t want to start timing the markets," he said.
Paul Davis of Clear Financial Advice sees the advantages of using a regular savings plan, but thinks this method of investing does not suit all asset classes, or all market periods.
"It’s all about the performance of the fund over the period – if it’s the kind of fund that is continually on an upward trend, this kind of method is a bit of a waste of time," he said.
"If you don’t have an element of volatility, I don’t really see it working; say a bond fund, which should – hopefully – go up on a gradual basis."
For example, a lump sum of £10,000 invested five years ago in the average Sterling Corporate Bond fund would now be worth £13,177. A lump sum of £1,000 and £150 in monthly contributions would be worth £12,470.