Time to get in the savings habit

Are you ready for Christmas? Assuming you’ve not been consumed by festive panic, now is the time to start thinking about New Year’s resolutions – and for many people, the promises they make themselves for the year ahead will include getting their finances in order.

Britons aren’t always brilliant at putting money aside for the future. A survey published in the Daily Mail in September asked a representative sample of adults about their regrets in life – the most common response was that people regretted not saving more. More than a third of people in the survey said they wished they’d put more money by.

Savings schemes for a rainy day

If you’d have told researchers the same thing, why not make 2016 the year in which you do something about your lack of savings – it’s never too late. And given that one of the things that puts many people off saving is the perception that they don’t have much spare cash to put by, it makes sense to look for a savings vehicle that will enable you to deposit relatively small amounts regularly over the long term.

An investment company savings scheme could be perfect. These schemes are operated by most investment company managers and enable savers to invest as little as £30 a month. You choose the fund into which your money goes, and your savings build up over time depending on the performance of the assets in which the investment company invests – typically shares, either in the UK or another international stock market, or a mix of markets.

In fact, last year marked the 30th anniversary of the first ever investment company savings scheme, which was launched by Foreign & Colonial Investment Trust in 1984. The history of that scheme underlines just how profitable regular saving can be over the long term, even if you’re only putting in small sums. A saver who invested £50 into the Foreign & Colonial scheme each month for its first 30 years would have had £90,232 by last year – not a bad return on £18,000 worth of investments.

Tricks of the trade

One of the reasons regular savings is so effective is that putting money by in this way exposes you to a mathematical phenomenon known as pound-cost averaging. The idea is that in months when your fund has fallen in value because the price of its assets has come down, your fixed amount of savings buys you more shares in the investment company. In months when the fund is more expensive, the opposite happens.

The effect is to smooth out the natural ups and downs of investing in the stock market – and there’s no need to worry about trying to time your investment perfectly.

Investment company savings schemes will also allow you to reinvest the dividend income paid on your shares, if you choose this option, which boosts the value of your investment. You will also have the option of setting up the plan inside an individual savings account (ISA), which will protect your investment from income and capital gains tax.

Investment company savings schemes aren’t for everyone – if you’re prioritising paying down expensive debt, or can’t afford to leave your money invested for the long term (the stock market is really for investors with time horizons of five years or more), this isn’t the right option for you. But if you’re promising yourself that 2016 will be the year when you finally establish a disciplined, long-term savings habit, an investment company savings scheme could be the perfect way to achieve your goal.