Investment strategies weighed up by AIC

Investors are currently facing a dilemma over whether or not to ’drip feed’ money into the markets, major new research has shown.

The Association of Investment Companies (AIC), which released the analysis yesterday, said that returns varied over time depending on whether or not money was put in as a lump sum, or in regular payments.

Over the past year, markets have fallen sharply as the global credit crunch led to a downturn in the real economy.

According to the AIC, if an investor had put in £50 a month through an investment company over the past 12 months, he or she would be down an average of seven per cent on the year.

However, this negative return swells to 30 per cent if the same amount - £600 - was put in all at once.

These relative performances are reversed assuming a ten-year investment period, with a £6,000 lump sum investment put in during 1999 offering 44 per cent, while £50 a month returns just 15 per cent.

Investors tempted to move back into the markets today therefore must weigh up the varying risk and possible benefits of each strategy.

Annabel Brodie-Smith, communications director at the AIC, said: ’Investors looking to re-enter the stock market may be prepared to give up some of the potential long-term outperformance of lump sum investing and gain a lower risk profile by drip feeding their investment.’

She added: ’Regular saving can help smooth out some of those stomach churning highs and lows in the price of shares.’ADNFCR-2318-ID-19178792-ADNFCR