Drip feed your Isa

Last week, the annual individual savings allowance (Isa) went up from £10,200 to £10,680. Figures from F&C Investments show that over the past 10 years a regular investor who put £100 a month into Foreign & Colonial Investment Trust or the FTSE All-Share index from the start of 1 April to the next year would, on average, be better off than a lump-sum investor who put in £1,200 at the start of the period.

Of course, past performance is no guide to the future, and there are times when lump-sum investment works better. But investing regularly is a good way to smooth out these ups and downs. This has the added benefit of being more affordable - not everyone will have the full Isa allowance lying around at the beginning of the tax year.

By making regular investments you could also manage to buy more shares or units for the same amount of money as a lump-sum investor. This is possible through a process known as pound cost averaging. While the long-term trend of stock markets is generally upwards, in the short term, prices move up and down all the time. The benefit of investing a fixed amount each month is that you automatically end up buying more units when prices are low, and fewer when they are high.

One drawback is that regular investing may increase your dealing costs, although there's often no cost attached to buying fund units, and many stock brokers now offer steep discounts for regular investment in shares. Another is that in a strongly rising market, the lump-sum investor will be better off. And if there is dividend income associated with your investment, you'll get less if dividends are paid early in the year, when you own fewer units.

Jason Hollands, head of corporate affairs at F&C Investments, said: "While there have been some years, such as 2003 and 2009, when investing a lump sum at the start of April would have borne fruit spectacularly, there have equally been others - such as 2000, 2002 and 2010 - where it would have been exactly the wrong thing to do. By investing regularly, investors stand a better chance of riding out the short-term ups and downs in the market, plus it has the advantage of being more affordable and is a good discipline."

The table below shows the effects. A lump-sum investment of £1,200 in January would buy 1,200 shares. But if you put in £100 each month, you'd finish the year with 1,220 shares bought at an average price of 98.3p.

The effect of pound cost averaging

Source: F&C Investments