The recent stock market rally may make it more tempting to pile into UK shares. After all, some FTSE 100 and FTSE 250 shares have surged in value over recent months. That’s because investors are increasingly looking ahead to a reopening of the economy following coronavirus.
However, a strategy of buying shares slowly could prove to be more effective. It may mean an investor has scope to capitalise on volatile markets, as well as declines. It may also prevent a strategy of trying to time the stock market’s movements.
With commission costs having fallen to relatively low levels in recent years for regular investment services, this could lead to more stable and attractive returns in the long run.
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Investing money slowly in UK shares
Buying smaller amounts of UK shares regularly, instead of through a lump sum, could be a means of taking advantage of a volatile stock market. The recent stock market rally may not continue, since no market rise has ever persisted in perpetuity.
Therefore, there may be opportunities to buy UK stocks at lower prices than where they trade today. Investing regularly, rather than all available capital at once, may help an investor to capitalise on such a situation.
Furthermore, buying UK shares slowly may remove the temptation to try and time the market. As the last year has shown, predicting market movements is a very tough task. Especially over a short time period. As such, having a regular investment programme may mean less worrying about trying to invest at the perfect time (if there ever is such a time).
This may not only lead to higher potential returns. But it may lead to more time to analyse the next investment being made instead of being concerned about how a recent investment is performing.
The advantages of investing a lump sum
Of course, investing slowly in UK shares can mean missing out a stock market rally. For example, an investor who purchased FTSE 100 shares at their lowest point in March 2020 may have generated higher returns that someone who invested slowly since then. In a rising market, having capital invested for a longer time period can lead to greater returns via compounding.
Furthermore, even though regular investment services may have fallen in price in recent years, they could end up being more costly than a small number of trades over the long run. This point is perhaps especially pertinent for smaller investors, for whom commission costs can have a sizeable impact on their returns.
Risk/reward opportunities
Despite the higher potential cost of investing money slowly in UK shares, its advantages may outweigh its disadvantages. The stock market has always experienced a cycle in the past, which suggests that its recent rally may ultimately give way to a period of less attractive performance.
Investing regularly, rather than using a lump sum, may provide opportunities to capitalise on this over the long run.
