After the recent stock market crash, investing £100 a month or any other amount in an ISA might seem like a risky proposition.
However, now could be the perfect time to start saving for the future. Doing so could help increase your financial prospects and build a sizable financial nest egg.
Saving for the future
The market crash of 2020 has caused significant losses for many investors. Nevertheless, the market’s performance has for years been characterised by periods of boom and bust.
Yet over the long run, investing in the stock market has still proven to be a highly lucrative exercise.
Indeed, since its inception in the mid-1980s, the FTSE 100 has produced total returns in excess of 8% per annum. There have been peaks and troughs along the way, but over the long run, patient ISA investors have been well-rewarded.
The problem is, it’s quite challenging to pick the best time to buy the market.
Investors who bought while the index has been enjoying strong returns in a boom period may have experienced high returns. However, other investors who bought during bear markets and downturns could have produced even higher returns.
Investors who bought near the top of the market have had to weather protracted periods of lousy performance, but have generally seen a positive return over the long term.
One of the best ways to overcome this problem may be to ‘pound cost average’ your ISA investments. Simply put, this means setting up a regular investment plan to buy a set amount of shares every month.
Regular investing ISA
Investing £100, or any other amount, every month in an ISA could help you ride out the peaks and troughs. This will allow you to benefit from the market’s wealth-creating potential over the long run without having to worry about trying to time your investments.
By setting a fixed investment amount every month, the plan will buy more of a particular investment when it falls in value and less when it rises. This approach could help improve your ISA returns over the long run.
Most online stockbrokers now offer this service. You can invest £100 a month into the market through a selection of investment funds. A low-cost tracker fund may be the best option for this amount.
Buying individual stocks and investment trusts could incur significant transaction charges, which may eat into your cash reserves. A market tracker fund would help you regularly invest in an ISA cost-effectively while achieving broad diversification at the click of a button.
As such, by adopting a long-term focus and setting up a regular investment plan, you could dramatically improve your investment prospects. Such an approach would allow you to benefit from the market’s peaks and troughs without having to spend too much time and effort trying to time your investments.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.