Why Now is a Good Time to Start Saving

By: Maria Brown | Posted on: 19 June 2015

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If you are thinking about starting a regular savings plan, or putting away a little more each month, the chances are you will be asking questions like 'when', 'where' and 'how much'. The obvious answer to the question of 'when' is 'the sooner the better', but deciding how best to save can often lead to delay. Do you choose a cash ISA, or one that is linked to the stock market? Do you stick with a building society account? These are just a few of the questions that a cursory look at the market raises, but setting aside - or earmarking - a regular amount each week or month immediately makes good sense, and gives you time to ponder whilst the money builds up.

Regular investing is about just this, of course: a means of accumulating a lump sum. Financial planners will tell you that a reasonable size fund should always be immediately accessible for emergencies, so building a suitable cushion in the bank, or separately as cash in a savings account, makes a good starting point for savers.

The more difficult questions arise when a solid emergency fund is in place and it is time to consider investing. The stock market is not for everyone, but a careful look at attitude to investment risk can draw out the extent to which you are comfortable with exposing savings to market volatility.

The issue of timing is likely to come up alongside this, but, for regular savers, what is really important is the overall timescale available for saving, i.e. exactly how many months and years you have to accumulate the lump sum you want. Regular savings accumulate surprisingly quickly, so delaying saving basically reduces the opportunity to save - and for investments to grow - and increases the risk of never fully achieving long term savings goals, such as retiring at a specific age, or funding education.

Couple this with the fact that regular investors benefit from pound cost averaging (the averaging effect that occurs as the cost of the underlying assets varies for each instalment of a savings plan) across the term of the investment, and it is harder to justify arguments for delaying, such as poor prevailing market conditions. Put another way, those who save regularly through a period of poor market performance are buying units or shares at cheaper prices and thus achieving a lower average cost over time for their underlying holdings. Poor market conditions should not, therefore, be seen as a deterrent to starting (or continuing) regular stock market linked savings.

In turn, how any fund performs over time will, ultimately, depend on the performance of the underlying assets. If these trend upwards, the average price paid increases over time, as does the fund value. Investors are looking to make returns that outstrip inflation, and this means that being flexible - within a reasonable time window - about when you sell is essential.

So, whilst timing is a crucial factor for investors, factoring in the risk of delaying is also an important element in the decision making process. The choice to invest is a very personal one - one which, above all, the investor needs to be comfortable with - but, for cash savers, it is difficult to argue against the wisdom of setting aside money for the future in one form or another without delay.


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