Jenny Lowe looks at the benefits of saving ‘little and often’.

Most of the new year’s resolutions made since the start of 2010 – lose weight, stop smoking, be more active – will, no doubt, have been broken by now. But there is one that, once made, is very cheap and easy to keep: to invest regularly into your individual savings account (ISA).

Regular savings ISAs enable you to invest in either stocks and shares or cash, or a combination of the two, depending upon your objectives for your capital and how much investment risk you wish to take with your regular savings.

These vehicles, as with single contributions, come in two forms – cash ISAs and stocks and shares ISAs.

The benefits
By investing on a regular basis, you will benefit in all market conditions, as your fixed regular contribution will buy more units when investment values are falling and this will be to your benefit when investment values begin to rise again.

Even if you can only afford to put a small amount away each month, it is well worth getting into the savings habit. Regular saving often offers the best returns on the proviso that you don’t dip into your funds for a fixed period. You can start saving with as little as £1, but the best ISAs require a deposit of at least £20 to £25 – hardly a prohibitive cost to most.

‘Traditionally, many people build up their savings in a regular savings account and then wait until the end of the tax year to squirrel away the lump sum in their ISA, but they could be missing a trick,’ enthuses Kevin Mountford, head of banking at moneysupermarket.com.

‘You should consider investing straight into a regular saver ISA. They work just like a regular savings account so you can stash your cash away in small monthly increments, but the rates on offer can be far more competitive and you don’t pay any tax on your returns.’

An added advantage of regular saving is known as ‘pound cost averaging’. This effectively means that by buying your shares on a monthly basis, you are smoothing out the highs and lows of the share price over time because you buy fewer when the price is high and more when the price is low. The result of this is that during times of extreme market volatility the average price you pay for your shares over a given period is lower than the average market price.

Time, not timing
Mike Parsons, head of UK distributor sales at J.P. Morgan Asset Management, explains, ‘Time, and not timing is the key to successful investing. Naturally, all investors would like to be able to predict the movements of the market – buying at the bottom and selling at the top.

‘Getting this wrong can significantly affect the performance of investments and, consequently, investor returns. However tempting it might be to “follow the crowd” and sell at the first signs of a downturn, investors who are in for the long haul and remain committed to riding out the turbulence will reap the rewards in the end.’

Investors who, understandably, may have reservations about investing a large amount of money into volatile markets can benefit from drip feeding their money in. As Annabel Brodie-Smith, the AIC’s communications director, explains, ‘It’s worth remembering that in the recent choppy market conditions, regular saving has outperformed lump sum investments.

‘In this context, investors looking to re-enter the stock market may be prepared to give up some of the potential long-term outperformance of lump sum investing and gain a lower risk profile by drip feeding their investment.’