It pays to save regularly

How long should you save for?

It really depends on what you want to save for and how much you want to save. If you would like to retire in 15 years then choose 15 years but make sure whatever amount you save is something you can afford during that time. This helps you have a clear picture of your target amount in retirement which you can then manage over time.

If you’re earning a lot more for say the five years you plan to work abroad then it makes sense to save a larger amount but over a shorter period of time.

Dollar/Pound/Euro Cost Averaging?

This is the process of regularly saving the same amount, usually on a monthly basis, to smooth out the highs and lows of the market in which you’re invested. It’s also extremely useful as a means of saving if you don’t have a lump sum to invest.

The effect of pound cost averaging is that you're buying assets at different prices on a regular basis, rather than buying at just one price. And while riding out the movements of the market, you could also end up better off than if you invested with a lump sum. 

Let’s look at this in practice.

If you invested a £10,000 lump sum and bought share units valued at £10 each, you'd have 1,000 units. This would remain fixed unless you bought more units.

Now, if you bought £500 worth of share units per month over 18 months (£10,000 overall), you would buy 50 units in the first month.

If the unit price went down to £9.50 in the second month, you'd be able to buy 52 units, as the share units are at a lower price, and so on and so on.

If the unit price recovers to the original £10 your lump sum would not have grown, but a regular savings plan would have more units and thus more growth on your capital.

One potential downside of this is that if your savings continuously grow, you'll be missing out on some of that growth as not all of your money has been invested over the whole period. But then if your investments continuously grow then it’s not that bad a downside!