Set a monthly budget and watch your money grow

Richard Buxton of Schroders has had a long and successful investment career.

Investors in his Schroder UK Alpha Plus fund have seen their money more than double since he took over the fund nearly 10 years ago.

Here Richard, who has a Citywire AA rating for his investment performance, distills what he has learned into two essential points. 

Richard says:

'Two really important things that are usually wrapped up in jargon:

1) Diversify in non-correlated assets. 

'Otherwise known as ‘don’t put all your eggs in one basket’. Have a mix of assets so as to lessen the chances of everything going down (or up) together.

2) "Pound cost averaging" is fantastic

'Pound cost averaging' is fantastic for the longer-term saver. In other words, regular savings. Invest a set amount every month and it means when markets are low you buy more for your money – and, as importantly, when markets are high you buy fewer shares / units / in your funds. Compound this over many years and it is very powerful.

'It does mean you have to set a budget for monthly investment and stick to it regardless of short-term circumstances, however, to get the full benefit.'

We say:

Don't put all your eggs in one basket is the classic reason for saving into a stock market fund like Richard's. As our guide to investment funds explains, by putting money into a fund you pool your money with lots of other investors and thereby gain access to a much wider range of investments than you could achieve on your own.

The point about 'pound cost averaging' is also well made. The fact is that regular saving is an efficient way to deal with the stock market's rises and falls. As your money buys fewer fund units or shares when prices are high – and more of them when prices are low – a regular investor ends up buying at a below average price. The Association of Investment Companies website has a good explanation of this.

Previous Money Master Classes have included:

• Tips for savers from Charles MacKinnon;
• How to clear your financial hurdles;
• 3 top tips for reluctant savers;
• Take one step at a time to reach your financial goals.

Tomorrow: Nigel Thomas of AXA Framlington shares his investment wisdom