Downside of regular investing

"I put £4,000 in each of these at the start and have since made regular contributions of £150 a month in each of them," she says. "Although I have had these funds for a while now, I have seen no returns on my money. I honestly think I can get more from investing in equities than from funds in the Isa."

This frustration illustrates one of the big problems with investing on a regular basis. You know how much you have put in altogether over a period, but it is difficult to work out if you have made any progress as you have bought small amounts at so many different prices.

First consider how long you have been investing. Funds such as these - and they're all decent funds with good managers - should really be held for at least five years. Has your earliest contribution made money? £12,000 split equally across Carolina's three funds at the start of 2008 would now be worth £16,864. That's a very nice 40.5 per cent uplift on a well-diversified portfolio, over a period of four years and four months.

Performance of Carolina's Isa funds

Source: Investors Chronicle, based on fund manager fact sheets.

Regular contributions, such as Carolina's monthly £450 across three funds, are a good investment strategy because they ensure investment discipline (also, you make sure that you pay as you earn so you get used to not having the money in your pocket).

'Pound cost averaging' is another widely cited benefit of regular contributions. If you make regular investments into an Isa, rather than investing a lump sum, the average price paid per investment unit can be lower than the straight average of the investment price over the same time period.

But volatile markets can also work against a regular investor. If you invest in a market that rises and then falls, the average price paid per investment can sometimes work out higher than the straight average of the investment price over the same time period.

Barclays Stockbrokers compared the effect of a single investment of £6,000 against investing £500 per month in two scenarios - a market that rises and then falls, and a market that falls before rising. In all three hypothetical cases, the starting price is the same as the end price.

The single investment where a lump sum is invested and the market returns to its starting position in either direction delivers no gain at all. The regular £500 investments in a falling then rising market showed a 20 per cent gain. But the regular investments in a rising then falling market delivered a 12 per cent loss.

If Carolina started investing into a rising market, for example in 2009 or 2010, then this could explain why her portfolio hasn't made progress.

 Regular premium of £500 per month (£6,000 total investment)

Source: Barclays Stockbrokers