If you want to start investing or would like to boost an existing portfolio, your mind might turn to using a lump sum. However, there could be benefits to drip-feeding your investments instead.
Drip-feeding means you slowly add money to your investment portfolio. So, rather than investing £10,000 straightaway, you might increase your investment portfolio through £500 boosts each month.
One of the key benefits of drip-feeding investments is that you don’t need a lump sum available now. As a result, it could be a useful option if you’re investing for the first time.
While investing a lump sum might seem more straightforward, drip-feeding your investments could be beneficial in helping you manage your portfolio and even has the potential to improve returns.
1. Investing in smaller amounts could ease investment worry
Research from Lloyds Bank found that half of Brits are intimidated by investing. You might worry about investing at the “wrong” time or how to select investments that are right for you.
Drip-feeding can alleviate some of the fear you might have about investing. As you’d be investing smaller sums each time, it could help make it seem less daunting and ease your concerns about losses.
That’s not to say it isn’t important to still weigh up investment risk. You should assess which investments are right for you and whether they suit your risk profile. Reviewing which investments suit your goals and circumstances is something we can help you with.
What’s more, drip-feeding can help make investing part of your regular outgoings – you might decide you want to invest a proportion of your income each month. This approach may mean you feel more confident managing your investments over time.
Regular deposits could also create positive money habits. Over the long term, you might end up investing more than you would if you invested a lump sum if it becomes part of your monthly budget.
2. It could help smooth out market fluctuations
The ups and downs of the market are one of the reasons investing can seem intimidating.
Market movements are often unpredictable and the value of your investments will rise and fall over the short term. For some, this could present a good reason to drip-feed investments.
If you invest a lump sum just before the market experiences a downturn, the value of your investment could fall immediately. In contrast, when you spread out depositing money into your investment portfolio, you’ll buy assets at different points in the market cycle. This may help smooth out the peaks and troughs so you experience less volatility. It’s an approach that is known as “pound cost averaging”.
As you’ll be investing regularly, drip-feeding can also remove the temptation to try and time the market.
Every investor would love to buy when shares are at a low and sell at a high. Trying to time the market to achieve this might seem like an attractive option, but unpredictability means it’s impossible to consistently time the market. Even investment managers, who have staff and resources at their disposal, can get it wrong.
There’s a chance you could sell and end up missing out on gains. Missing just a few of the “best days” each year could significantly affect investment returns.
Keep in mind that volatility is part of investing. The value of your portfolio may be affected by short-term fluctuations, but, while investment returns cannot be guaranteed, historically, markets have delivered returns over a long-term time frame.
Frequent deposits into your portfolio could help you focus on the bigger picture and your long-term goals.
Contact us to talk about your investment strategy
We can work with you to create an investment strategy that’s aligned with your goals and circumstances. Whether you want to drip-feed investments or you have a lump sum that’s ready to be invested now, we’ll work with you to create a tailored plan.
Please contact us to arrange a meeting and learn more about how we could support your investments and wider financial plan.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
