Turning off the tap

By NEIL SIMPSON
Updated: 19:00 EST, 10 February 2003

DIRE stock markets have frightened thousands of regular investors out of share-based Isas. Figures last week from the Investment Management Association show that the number of investors who put savings into Isas month by month is falling.

Clare Arber, head of communications at the IMA, says: 'In 2001, more than two million people drip-fed savings into Isas each month to build up money for the future. But the number started to fall towards the end of that year. Now fewer than 1.9m people have regular savings plans.'

Financial experts say it is a disturbing trend. 'Most of us recognise that we need to put more money aside for our future and regular savings schemes are a cheap and easy way to do so,' says Robin Bone of independent financial adviser the David Aaron Partnership in Woburn Sands, Bedfordshire.

'It's worrying that they are becoming less popular. It is even worse that people are cancelling these plans now - low stock markets mean that most regular savings schemes are great value.'

For example, an investor putting £100 a month into the Marks & Spencer UK 100 Isa would have bought 46 units in the fund in December 1999 when stock markets were at their peak. Today, with shares so much lower, the same £100 contribution buys 81 units. Investors who buy units each month through thick and thin end up with far more than they expected. All the months when a saver buys, say, 81 units rather than 46 will prove worthwhile if markets eventually recover.

M&S Financial Services manager Mark Birch says: 'No one knows if we have hit the bottom of the market yet, but investing at today's prices gives great potential for future growth.'

Most Isa companies allow contributions of as little as £25 a month in any of their investment funds. Clients pay in by direct debit and may generally increase, reduce or stop payments at any time without penalty.

There are no extra charges for regular savings plans - savers pay the ordinary fund charges on the unit or investment trusts selected.

'It is one of the most painless ways to build up money for the future,' says Bone. 'If the direct debits go out just after you've been paid, you will hardly even notice the money disappearing. After a few years you will have a decent holding of units or shares.

'Investing small amounts regularly can be less stressful than investing a one-off lump sum, and putting money aside each month means you don't need to worry if you are getting the timing right.'

Joanne Nye, 33, from south London, has kept her faith in regular savings schemes. Joanne, who is single and a design and advertising consultant, started investing in the top-performing Fidelity Special Situations Fund in 1998. 'When shares were going up and up it felt as if I was doing really well, though my money seemed to buy me fewer units each month. 'Now my money goes much further. As long as stock markets recover I'll be pleased I kept investing through the bad times.'