Time to reap the rewards of some disciplined saving

For any stock market related investments, timing is crucial. Towards the top of an investment cycle, your money is paying too much for the benefit. Conversely, hardly anyone can call the bottom of the market.

Nor is there any point in paying share tipsters – just like horse racing pundits – who make money out of selling their advice. If they were that successful, they would be investing their own money and not revealing secrets for a fraction of the potential profits.

The answer is to save on a regular basis, not missing a payment. Then your money will of course go further when markets are low but this effectively means your net overall cost is averaged and shares or units have been purchased at the fairest price possible.

This can be illustrated by taking investment trusts, which are one of the most popular forms of collective savings. Unlike unit trusts, they have independent boards of directors and can borrow ('gearing') if the manager sees a good opportunity.

If 50 had been invested in the average investment trust over three years, it would now be worth 1,845. Yet investing the equivalent lump sum of 1,800 over the same period, it would now be worth 1,611. In both cases, the figures are after taking dividends and typical 3.5 per cent charges into account.

If the dividend is not required for income, automatically reinvest it in the same chosen saving. A study last summer compared equities with property over five years. It showed that the FTSE index had risen 9.6 per cent but by an amazing 31.8 per cent if dividends had been reinvested. Property incidentally was up only 0.7 per cent.

Last year the average sum saved each month increased by over 20 per cent. According to Santander, formerly Abbey, 163 a month was being invested a year ago but this had risen to 198 by December. Men made the better savers, investing 220 monthly by comparison with 176 for women.

Those looking for a higher rate for their cash should consider the regular route. It's possible that savers are still in deposit accounts at derisory rates: 0.10 per cent at Alliance & Leicester, Barclays, Barnsley, Beverley, HSBC, Leeds, Nationwide, RBS and Yorkshire Bank.

Instead it's high time to enjoy some of the monthly savings rates, such as:

n Chorley & District Building Society 5 per cent on 1-150 which

allows missed payments to be made up but restricted to existing members.

n Stroud & Swindon Building Society 4.50 per cent on 10-250 with one withdrawal allowed but 2.50 per cent loss if payments missed.

n Principality Building Society 4.50 per cent fixed on 20-500 but dropped to 0.10 per cent if payment missed or closed before 12 months

Even better fixed rates are available for regular savings if you already hold an account. Gain 8 per cent on 25-250 with HSBC (Premier, Plus, Passport or Graduate customers), six per cent on 20-250 with Santander (Preferred in Credit Rate or Reward account) or five per cent with both First Direct (on 25-300) and Norwich & Peterborough (on 20-250).

Santander have a novel regular saver for those considering a mortgage. Its First Home Saver Special currently pays five per cent, which is variable, on 100-300 a month but accepts up to 5,000 initially. You must have a mortgage interview up to 90 days before closing the account.

If considering your cash ISA, again a regular saver – Stroud & Swindon with 3.75 per cent on a minimum 25 – beats the best instant access, which is 2.65 per cent with Standard Life Savings. Stroud's rate includes a 2.75 per cent bonus which is lost if 12 payments are not made although one withdrawal is allowed each year.

Children can also benefit from regular savings. A fixed six per cent can be enjoyed with Halifax on 10-100 monthly over one year. At the end of that period, the money is either transferred to their Save4it account (paying currently only 1.05 per cent) or a nominated Halifax account held by an adult on the child's behalf and so open a fresh regular saver.

Principality also has a monthly children's account which pays a fixed five per cent on 10-150.

Many collective funds offer monthly schemes which is an excellent way to invest in the stock market. The regular sums start at surprisingly low levels, such as 20 with both Henderson Global Investors (through Halifax Share Dealing) and RIT Capital Partners with their global growth fund, 25 at both Progressive Asset (through Jarvis Investment Management) and Scottish Investment Trust and 30 with Baillie Gifford.

For such small sums, the investor is gaining the expertise of a leading stock-picking professional, backed in most cases by independent

research teams of note. Several managers also offer children's investment schemes, such as from 25 monthly with F&C, which founded the first investment trust in 1868, SVM (for UK growth) and for global growth, both Scottish Investment and Witan.

For the same starting sum, Bluehone and Graphite Capital – covering venture capital and private equity respectively – can also be accessed through F&C.

For stock market savers seeking a tax advantage, consider regular contributions to an ISA and a pension scheme. As an incentive, many offer no initial charges and low annual fees. Consider also the 10-year tax-exempt savings plans offered by many friendly societies although there is a low 25 monthly limit.

For a monthly investment trust ISA plan with no starter or annual charges, consider Alliance Trust, Baring Asset, Personal Assets, SVM and – through Alliance Trust – both Allianz Global and Martin Currie. With unit trusts and open-ended investment companies, many discount brokers will reduce fees, notably Hargreaves Lansdown and Torquil Clark.

The FTSE 100 rose 22.1 per cent last year. Merrill Lynch expect equities to outperform both corporate and government bonds in 2010. Their UK based strategist, Bill O'Neill, forecasts 4.3 per cent global growth after shrinking almost one per cent last year.

O'Neill says China and India will spearhead the recovery with growth of 10 and seven per cent respectively. By contrast, the US and eurozone may grow by three and two per cent but without accompanying risk of inflation.

For China, look particularly at First State Greater China Growth, Gartmore China (up 53.4 per cent last year) and JP Morgan Chinese. For India consider JP Morgan Indian, New India (from Aberdeen) and AIM-listed India Capital Growth.

Mutual decision reaps rewards

Both Lynne Crapper and her husband Nigel, were recommended to start 25 monthly savings plans with Sheffield Mutual Friendly Society by their financial adviser, Bill Smith of Pace Financial Management in Sheffield.

Each plan is tax-exempt and runs for 10 years. Lynne, 49, who works in human resources for Sheffield Primary Care Trust, says she was "looking for a guaranteed investment" and was "surprised by the impressive figures of Sheffield Mutual". Her plan gives a guaranteed sum assured of 3,083. Sheffield Mutual paid 6,299 on maturing 10-year-old policies at the end of 2008, an annual return of 14.4 per cent.

The money is invested in the society's with-profits fund which is invested largely in equities (22 per cent), comm-ercial properties (46 per cent) and gilts/fixed interest.

Lynne is studying human resources at Doncaster College and enjoys sewing.

n Pace Financial Management 0114 239 7777.