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Investing into your ISA regularly: it all adds up

Investing into your ISA regularly: it all adds up

It is often said that Einstein declared compounding the most powerful force on earth. While the authenticity of this quote is debatable there is no denying that compounding is extremely potent. It is also something that investors often overlook – or underestimate – when thinking about putting away money over the long term. Here we look at the ways in which compounding can influence the performance of your ISAs and ultimately help you reach your investment goals.

Time is money

Our chart illustrates the impact of compounding over time and helps drive home the message that investing regularly does add up. It focuses on two investors: Mo and Flo. Mo has managed to invest £100 on a monthly basis over 40 years while Flo came to investing later but chose to invest a larger sum of £250 a month. Both received an annual return of 5% compounded monthly.

The impact of compound growth

mo flo graph

Source: Bestinvest. This image is for illustrative purposes only.

Smoothing out volatility

Regular investing over time also helps smooth out the highs and lows of markets so during a prolonged bout of volatility such as now, it can make real sense. If you were investing a lump sum, you’d be committing it all to the market at the same time. This might work well for you but buying into markets at the right time is notoriously difficult not to mention extremely stressful and if you get it wrong you could suffer.

With regular investing, your money is drip fed into the markets meaning you don’t end up buying everything on the same day at the same price. Instead, when prices are low your money buys more and when they rise, you get less. This is known as ‘pound cost averaging’.

Regular investing into an ISA

You can continue investing into an ISA throughout your life, and while there is a set annual contribution allowance, there is no limit to the size an ISA portfolio can grow to. The long time horizons of ISAs mean that they are very well suited to regular investing because they can give compounding the opportunity to really take root. With ISAs, your investments grow free from Capital Gains Tax and Income Tax which helps boost the effects of compounding even further.

We can help with your ISA investments

Bestinvest was voted Self Select ISA Provider of the Year at the Investors Chronicle and FT Investment Awards 2013. It’s quick and easy to start an ISA with us or to transfer existing ISAs.

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Premier Selection

Our Premier Selection guide can help you choose the right investments for your portfolio. It highlights funds across 23 investment sectors that our independent research analysts believe are most likely to deliver for you over the long term.

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Spot the Dog

Spot the dog is our landmark publication exposing the worst-performing funds across 10 key investment sectors. Download Spot the dog here to make sure you aren’t investing in any dog funds, and if you are, to see how to get your investments back on track.

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Being a self-directed investor doesn’t mean you need to manage your investments alone. Invest into one of our Multi-asset Portfolios to benefit from an expert investment mix and on-going active management by our Chief Investment Officer.

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The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

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