Regular Savings Scheme

Regular savings scheme. While investing in the stock market was once only the province of the wealthy with considerable lump sums to invest, the advent of the regular savings scheme has meant that this is no longer the case.

Regular savings schemes are offered by many investment trust companies, ISA providers and unit trust managers, and allow investors to contribute sometimes as little as £50 a month.

Besides making equity investment accessible to those of lesser means, regular savings schemes have a number of other advantages.

The fact that you are dripping your money gradually into the investment, rather than all in one go, means that you don't need to worry about market timing and the risk of buying shares just at the moment when they are wildly overpriced and are about to plummet in value. Also, regular savers benefit from an effect called pound/cost averaging, which means that over time, the average amount paid for the shares works out to be less than the share's average price.

Another advantage is that regular savings schemes are flexible and payments can be increased, reduced or even suspended for a time, depending on your circumstances.

Regular savings schemes do have drawbacks. It takes time to build up a sizeable investment. Furthermore, you are never going to experience the dramatic returns enjoyed by those who invest a lump sum just before the share price is about to shoot through the roof. But for sheer peace of mind, this is a possibility which small investors may be willing to forego.

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Last Updated: March 2008 © Moneyextra.com

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