5 reasons regular savings can pay off for investors over the long-term

Bestinvest analysis of its regular savers – those saving monthly into Bestinvest accounts – found adult account holders aged between 51 to 60 make up the largest share among our adult monthly savers followed by those aged between 41 to 50 (see table below). 

Our largest cohort of regular savers are children aged between 0 to 18 – highlighting the value parents and grandparents put on building a pot of money to shore up their children’s financial futures.  

Regular savers at Bestinvest (%)

Account holder age	% with regular savings set up
0 to 18	21%
19 to 30	9%
31 to 40	14%
41 to 50	19%
51 to 60	21%
61 to 70	10%
71 to 80	4%
Over 80	2%

Source: Bestinvest analysis as of April 2024

Of these account holders with regular savings set up:

• 42% invest regularly into our Stocks & Shares ISA – possibly a reflection of investors’ growing awareness of the importance of tax-free saving; money invested into an ISA can grow free of capital gains tax and income tax. This is important when you consider the annual capital gains and dividend allowances have both halved this tax year to £3,000 and £500 respectively
• 28% choose to save into our Best SIPP and reap the generous tax benefits for their retirement fund. It’s good to remember taxation depends on individual circumstances and may change
• 20% save directly into our Junior ISA
• 10% save into our general Investment Account 

Regular savers can also choose if they want to invest or save as cash. Bestinvest Investment Manager Emma Deuchars adds her insights to our regular savers analysis:

• 55% contribute directly into investments such as funds or direct equities – generally a good solution for investors, if you don't think you are going to touch the funds for more than seven years; this is what we consider to be long-term. Whereas medium term investors – usually four to six years – could also consider investing in the markets to reduce the risk of inflation eroding the value of their cash
• 42% save directly into cash – our rule of thumb is to hold six to twelve months of your usual expenditure in cash. this typically will give you the 'rainy day' funds you need, and you would be less likely to dip into your investment in an emergency, as this could mean a short-term loss

'Cash cannot keep pace with inflation over the long-term in the same way investments can. Even though current cash rates are good, they will inevitably fall when central banks drop their interest rates. At that point you could buy into / back into the market at a higher point – as opposed to those who remained invested or invested earlier. Some clients view cash as 100% safe, and it normally is in preserving the nominal value of funds but not their long-term spending power.' — Emma Deuchars, Investment Manager at Bestinvest

• 3% choose a mixture between the two – anyone looking to use funds in the short-term – typically anything under three years – is probably wise to stay in cash due to the potential impact market volatility could have on the short-term value of their investments

'If you are not comfortable investing and have spare cash you could consider the ISA allowance. You can use the cash to 'bank' that allowance for the tax year. You can always invest the cash later; in the meantime, you have locked down the tax-efficient benefits for your money.' — Emma Deuchars, Investment manager at Bestinvest

Saving regularly – typically monthly – can be affordable because investors decide a fixed sum that suits their monthly income to their investment account. Not only that, it’s also an effective way to manage short-term turbulence in the financial markets. It might not be right for everyone, for example debts might need to be paid off first but if you can afford to put a bit away regularly, here are five reasons regular saving can work for investors long-term.

'If the last five years has taught us any lessons, it’s that our political, environmental and economic landscape is hard to predict. Of course, it typically would have been better not to invest just prior to the first lock down, the Russian invasion of Ukraine or the infamous Truss Mini-Budget. However, most of us did not have access to crystal balls at the time. Without prophetic powers, the ‘little and often approach’ can help get you invested. You can combat long term inflation and work towards goals, while avoiding the worst-case scenario of investing your whole lump sum the day before an event that rocks global markets.' — Emma Deuchars, Investment Manager at Bestinvest

1. It makes investing hassle-free

Regular saving is simply the practice of investing a regular sum into an ISA, personal pension, or a general investment account monthly rather than committing to a lump sum in one go. Investors set up a and let their money toil away.  

The investor decides the amount they want to invest every month and selects investments aligned to their attitude to risk and financial goals – something that many people are already doing with their workplace pension. 

Remembering to purchase assets every four weeks can easily be forgotten, which is why collecting a set sum each month ensures investors don’t miss out. The money can be directed to a chosen investment fund or parked as cash within their account. This gives investors time to make an investment decision later.  But remember, investing comes with risks that you don’t get when you save money into a bank account. Markets go down as well as up and you may not get back what you put in.

Some platforms, such as Bestinvest, provide interest payments on cash balances — our custodian pays 4.2% AER on cash balances (as of April 2024 and subject to change), so cash won’t sit idle while you take more time to select your investments.   

2. Invest an affordable sum every month

Savers should only invest an amount they are happy to set aside each month and won’t need to dip into for at least five years. There’s no point investing £500 for a future life goal and raiding those funds months later because an unexpected household bill has cropped up.   

Choose an amount to save that won’t be missed. Some providers have set a minimum on regular saving; at Bestinvest this is set at £50. It’s a mistake to believe that you need to be wealthy to invest. Small, affordable amounts saved monthly still have the potential to deliver attractive returns over the long term. This is thanks to the beauty of compounding, where returns help to generate even more returns.

For a beginner, investing little and often allows you to ease your way into the markets, leaving your money to work hard without breaking the bank. As your investment confidence grows or your income rises, you can then adjust your monthly contribution upwards or leave it where it is. And if financial circumstances suddenly change, a direct debit can easily be cancelled. The existing money already committed will continue to toil away in the background even if no funds are added for a period. 

3. Create a disciplined savings habit

Investing regularly can help investors become more disciplined long-term savers, particularly those that struggle to find the time or motivation to make deposits every four weeks. Committing to a fixed sum every month that won’t leave the household budget short and won’t get touched once it is in your investment account, is an effortless way to create a savings habit that can last a lifetime.  

Starting small, sticking to the plan and being consistent, by saving that set sum even when the markets are having a wobble, encourages investors to stick to a regular investment pattern that helps their money work harder over the medium to long term. 

Take the emotion out of investing

People lead busy lives and tracking the ups and downs of a particular stock or fund can feel overwhelming or stressful for some, particularly novice investors. Emotions can cloud the judgement of even the most experienced investors, particularly if they are prone to reacting to the latest news headlines by panic selling. 

Instead, after spending time selecting your investments, automating the process ensures you not only commit a certain percentage of your monthly income towards your future, but you won’t need to fret whether an investment has gone up or down in value. Once your monthly contribution is set up, there is nothing else to do unless you want to change your monthly amount or choose a different investment to channel the money into. 

Time in the markets can smooth out volatility 

Investors should typically have a time horizon of at least five years. This is usually enough time to allow their money to ride out any ups and downs in the financial markets. Investments, especially equities, can be volatile over short-term time periods, but have historically delivered much higher real returns – that have a much better chance of beating the effects of inflation – than cash savings over the long term.

Waiting for a market downturn can cause investors to miss out on some of the best days in the markets. Regular saving can help investors get started and stay in control. Despite our suggestion of a minimum five-year time horizon, investors still deliberate over the right moment to invest. It runs the risk of ‘analysis paralysis’ where investors put too much effort into assessing the right time to enter the market, delaying their entry by months or even years. Investing can often be clouded by market noise, causing investors to second guess whether buying an asset at a certain point is the best decision.

'Take the ‘Magnificent 7’ — also known as Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. These mega-caps saw gains in 2023 that ranged from 48% to 240%. In hindsight, it’s clear the right course of action was to invest in the stocks early in 2023 and enjoy their upwards trajectory. However, last year’s big winners were some of the greatest losers of 2022 — so past performance clearly isn’t a guide to future performance. Investors trying to time the markets could – and have – easily ditched the Magnificent 7 whilst their values were falling, only to buy them back after prices were once again inflated.' — Emma Deuchars, Investment Manager at Bestinvest  

Investing on a regular basis rather than timing a lump sum investment means an investor consistently invests regardless of whether markets are up or down – this is key when you consider how difficult it is to accurately predict short-term market movements.  

Volatility in the stock market is normal and the positive thing to consider is that your money buys fewer shares when prices are higher and more when prices are lower, which averages out prices over time.  

4. It can make key life goals a reality 

Saving little and often can turn small amounts into large sums that can be used to fund major lifestyle goals – money that can be used to fund a home renovation, a sabbatical or retirement:

• A £300 monthly saving over 10 years equates to a total contribution of £36,000 and could yield a total ISA value of £45,553 – this is an example for illustrative purposes only; you could get back more or less than this amount. These figures exclude our fees and charges and different risk tolerances have not been considered
• Leave the funds untouched and continue that regular savings journey for another 10 years and the ISA pot will grow to £117,505
• These calculations are based on 5% medium-risk growth using Bestinvest’s ISA calculator

Don’t forget your children or grandchildren – this tax year a child has a Junior ISA allowance of up to £9,000:

• A family invests £750 a month or £9,000 a year and leaves the money in a Junior ISA for 18 years
• The total investment of £162,000 could grow to £250,926 over that period based on a 5% annual growth rate, again this is illustrative on the basis noted above
• This is a sizeable sum that could be used to fund university costs, or help a child buy their first home

Remember, tax rates and reliefs depend on individual circumstances and can change. Pension rules, as well as those for ISAs, can also change.

5. Check in on your investments along the way 

While regular investing lets money toil away in the background while an investor gets on with their everyday life, ignoring your portfolio altogether is not a good idea either.  

Periodically reviewing your investments, whether once a year or more frequently, to consider what financial goal you are trying to hit and whether you have the right mix of investments to achieve that goal is important. 

While a DIY investor may want to do the review themselves, others may want to seek guidance from a qualified financial adviser.  

How Bestinvest supports regular savers

Bestinvest offers free investment coaching – a 45-minute chat with a qualified financial planner to discuss financial plans and explore what investing could help you do with your money.

Investors keen for personalised investment recommendations can choose one of our low-cost advice packages to help investors decide what investments they should include and how they can build a portfolio that works for their financial goals. 

To encourage more investors to reap the rewards of regular saving, Bestinvest’s monthly savers prize draw rewards one regular saver every month with £250 in cash. To qualify, Bestinvest clients must be 18 or over and have in place a direct debit or standing order of £50 or more to their Individual Savings Account (ISA), Self-Invested Personal Pension (SIPP) or Investment Account before the 12^th of the month. This prize draw ends 12^th July 2024.

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