Investing at the ‘best time’ could make you £1,500 richer every year

Gabby Byron, of MGIM, said: “Investors will often find themselves selling prematurely, missing out on significant market rallies.”

Panic selling is similarly risky, because investors who sell during a downturn can end up missing out on substantial gains when the market eventually recovers. 

“In 2020, one of the best days occurred immediately after one of the worst, emphasising the importance of resilience and patience in navigating market turbulence,” said Ms Byron. “Enduring market noise and volatility is often the price to pay for long-term returns.”

Lump sum versus regular investing 

Some investors will find themselves in the position of having a large sum of money to invest, perhaps after receiving an inheritance. The question for these investors is: should they invest the money all at once, or drip-feed it into the market over time – also known as pound-cost averaging? 

James Norton, of asset manager Vanguard, says of the latter method: “What often tempts investors to use this approach is the fact that pound-cost averaging could provide some protection against the possibility of the market dropping sharply, shortly after the money is invested. No one wants to accidentally buy at the top of the market. 

“So, instead of the entire investment suffering this loss, only the smaller invested portion does. Then, in theory, the remainder is then invested at lower prices. In this way, if the market was falling, pound-cost averaging would work well.”

However, most of the time pound-cost averaging will lead to lower returns. Vanguard found that after one year, a $100,000 (£79,238) investment in a 60/40 portfolio would be worth $109,360 using the lump-sum approach, compared to $107,453 using cost averaging. A 60/40 portfolio is divided 60pc in equities and 40pc in fixed income. 

This is because investors drip-feeding money into the market are often buying when prices are increasing, as markets tend to go up more often than they go down, Mr Norton said.

He added: “Another drawback to pound-cost averaging is that it will alter the asset allocation of your existing portfolio until the new amount is fully invested. So any extra cash you hold could skew your overall mix of investments, and make it different to what you’d originally planned.”

The benefits of investing early 

While pound-cost averaging may not be the most lucrative option if you have a lump sum to invest, it’s still a good idea to make monthly payments into your investment account, if you can afford to. This is to ensure you are regularly squirrelling away money for the future. 

Guy James, 26, from the South West, started investing for the first time three years ago. “I invested £100 to start with, and quickly set up a direct debit,” he said. “I don’t have the time to pay attention to it so I just invest £25 a month into trackers and recommended funds.” 

Initially he invested in shares, but since then he has invested in S&P 500 and FTSE 100 tracker funds, along with some funds he has spotted on recommended lists, including Baillie Gifford Managed.

According to stockbroker Hargreaves Lansdown, most of its investors choose to invest in March, closely followed by April – around the tax year end. Investing at the start of the calendar year allows people to use up their remaining annual Isa allowance before they lose it, but it can be better to put money away as soon as a new tax year begins, as early-bird investors enjoy more time in the market.

For example, someone who had invested £3,000 in a global equity fund on the first day of each tax year between 1999 and 2023 would now have a pot worth £200,373, according to calculations by AJ Bell. However, if they had invested the same amount on the last day of each tax year their pot would be worth £191,102 – nearly £10,000 less.