How to save £64,000 more when investing £100 a month
PUBLISHED: 15:38 24 January 2020 | UPDATED: 15:43 24 January 2020
'Patience is bitter, but its fruit is sweet,' said Jean Jacques Rousseau - a quote worth remembering, says financial expert Peter Sharkey
I'm not convinced that the older we get the more unilaterally patient we become, not least because irrespective of age, we must occasionally walk barefoot across life's unexpectedly broad swath of painful gravel. And when that happens, we can become impatient and irritable.
For the sake of balance, I must add that I can be just as impatient as the next grey-haired, middle-aged bloke. You know: the one who rails against the ineptitude of drivers when they fail to indicate, or who wonders why, when you telephone some companies, they put you on hold and assault your eardrums with the most awful sound (it rarely passes muster as 'music') played as loudly as possible.
Similarly exasperating combinations of driver stupidity and patent lack of corporate concern for callers' eardrums manifest themselves far too frequently, but instead of becoming angry or impatient with these regular reminders of human weakness, I've endeavoured to become more laid back and accept that life's frustrations are sent to try us.
I've not been entirely successful in many areas, but am certainly more relaxed when attending meetings. There was a time when I cut matters so fine, I'd end up bombing around town like a madman in order to arrive on time but, frankly, ill-prepared. The solution is simple: plan your journey beforehand and leave 10-15 minutes earlier. Not complicated, is it? It took me a while to embrace the "take your time and plan ahead" approach, but it's one I've since adopted when investing. Indeed, learning to be a patient investor can pay enormous dividends, literally.
Impatience with a company's or a fund's performance can result in us chopping and changing, or 'mood investing', a costly exercise in itself and accompanied with an inherent risk that you'll end up following the herd and buying into the stock market's latest darling, rarely a great investment strategy.
Frankly, if the well-researched investment case which led us to part with our hard-earned in the first place remains sound, then why change when markets become a little volatile - as they're often inclined to do?
Years ago, an IFA told me that he tells clients to "cultivate the art of patience," terrific advice assuming you want to give your investments the best opportunity of making decent long term returns. Historically, the most impressive returns tend to come when investors retain an unwavering commitment to their investments and reinvest their dividends.
According to research conducted by fund manager Fidelity last year, investors who do not reinvest dividends generated from shares or funds are likely to undermine the longer-term value of their portfolios, ie 'shoot themselves in the foot'.
Fidelity noted that investing £ 100 a month in the FTSE All Share index over the past 30 years, reinvesting all dividends, would have created a portfolio worth £130,140 today.
By contrast, someone who had invested the same monthly sum but failed to re-invested the dividends would have ended up with a portfolio worth just £66,069, an eye-popping £64,071 less.
The analysis showed that reinvesting dividends can make a dramatic impact on return, even over a much shorter period. Investing just £100 a month in the FTSE All Share over the past 20 years and reinvesting the dividends would have produced a portfolio worth £50,630, but only £33,789 had you taken the dividends instead.
A Fidelity spokesman noted that: "Many investors are unaware that dividends can be the main driver of investment returns. While growth-focused investors sometimes treat dividends as the icing on the cake, they actually matter more than you think."
Becoming a 'patient investor' can clearly deliver significant benefits. Admittedly, it can be tempting to check upon the daily performance of individual investments because our burgeoning array of gadgets allows us to do this 24/7, but we should avoid such distractions and remain focused on the bigger, longer-term picture.
Nevertheless, it is also important to acknowledge that on occasion, selling makes good sense. Just because a fund, share, or theme once appeared a decent investment doesn't mean it will continue to over the longer-term. Nevertheless, developing a buy-and-sell habit can be expensive and frustrating.
Spending time preparing to invest makes good sense, as does reviewing your investments once every 6 or 12 months to ensure they still fit with your overall investment plan and attitude towards risk. In short, adopting a patient, longer-term approach to investment can be the most rewarding - especially when dividends are reinvested.
For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.