Many savers are missing out, according to J.P. Morgan (Image: Daniel Balakov via Getty Images)
UK savers and investors are missing out on the benefits of regular investing and could be sacrificing thousands of pounds in returns over the long term, new research from J.P. Morgan Personal Investing shows.
While UK consumers are being encouraged to take the first step to invest this year, new data shows that few are fully maximising the benefits of regular investing. Only 11% of adults say they are investing regularly despite 28% recognising that this is a top habit of financially successful people. Many consumers are overlooking regular investing in favour of short-term practical financial habits, with budgeting and spending tracking among more popular practices today.
More than half (56%) of investors said they were putting away up to £250 a month in their investment portfolio, but less than a quarter of UK investors (23%) had automated these investments (monthly). A total of 17% of investors admitted to investing irregularly, while 22% said they invest lump sums occasionally. Customer data from J.P. Morgan Personal Investing shows that 18–24-year-old investors are less likely than older age groups to have set up a direct debit to automate regular investment contributions.
J.P. Morgan has published new data (Image: Cheng Xin, Getty Images)
While some investors liked to have the flexibility of investing ad-hoc, J.P. Morgan said historical market data shows how this could have cost investors thousands of pounds in lost returns over the last decade. Analysis of the past 10 years of market data shows that a disciplined investor contributing £100 monthly to a global tracker fund would have accumulated £23,826, almost doubling the £12,000 they invested during the period.
Yet, someone who is an irregular investor and misses four payments per year finishes with just £15,853 at the end of the same period. What makes this finding particularly striking is that the irregular investor who missed payments only reduced their actual contributions by £4,000 over the decade. The additional £3,973 gap is purely from losing out on the benefits of compounding market returns, highlighting the true cost of missing contributions.
Claire Exley, head of financial advice and guidance at J.P. Morgan Personal Investing, said: “It can sometimes feel like a cliché when people say consistency is the key to forming good financial habits. But it really is true. Good financial habits compound over time, work together and get you closer to your future money goals if you can stick to them. Regular investing is no different.
“As our data shows, staying invested over the long-term and investing regularly each month in a globally diversified investment portfolio has been an effective way to build wealth over the last decade. While past performance isn’t guaranteed in the future, regular investing or pound-cost averaging as it’s often known is a tried and tested strategy to build wealth. It helps investors stay consistent by deploying money each month in the market, removing the emotion from making financial choices while smoothing out market volatility by regularly purchasing shares or funds as markets move up and down.
“Yet, too few are maximising their finances in this way, and many aren’t staying disciplined with their investing habits. As a result, this overlooked financial habit is costing investors thousands in lost returns over the long-term.
“One easy way for investors to overcome this is by setting up an automatic monthly investment via a direct debit or other means. This removes the need to invest manually which can be easily forgotten but is a costly mistake over the long-term.
“While some fear losing control of their finances when they automate their investment contributions, it removes the stress from actively choosing when to invest. If you are worried about an expensive month or a dip in income, you could set-up a regular investment at a lower amount and then top it up if you have extra money available to invest in the market.
“This acts as a back stop and avoids missing months and falling foul of becoming an irregular investor which can be costly in the long run. Ultimately, building wealth over the long-term by investing isn’t about being clever or timing markets perfectly as some are led to believe. It’s about staying disciplined and maintaining good financial habits.”