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Spend & Save

Julian Knight: Drip-feed money into the markets to avoid bad timing

Bad month for the bulls – but this is no concern if you follow the path of 'pound cost averaging'

"Sell in May and go away, come back on St Leger Day (14 September)" is an old City saying which you probably would have been wise to have followed this year, looking at how markets have plunged since the start of last month.

However, research shows that, for every year the saying proves correct, there are just as many it turns out to be wrong. In other words, it is codswallop.

But I can't deny, having been incredibly bullish on the markets, we have suffered a few bad weeks.

This is nothing to do with the UK economy, which is ticking along far better than our eurozone rivals. It's down to concerns over a potential softening of output in the US and the possibility that the much-lauded Abenomics in Japan may yet prove to be another false dawn.

However, for most private investors, such a short-term reverse as we have seen with markets falling off 10 per cent in a month really shouldn't be a worry – not if you follow the path of pound cost averaging.

Pound cost averaging is actually the worst sort of money jargon. It takes a simple concept and makes it seem incredibly complex.

In essence, pound cost averaging is a gradual drip-feeding of money into the markets – the easiest way is through monthly direct debit. So, even when markets are falling, you have the bonus of staying invested and your new cash is simply buying more stock.

It takes timing out of the whole investment equation and means you don't have to listen to nonsense sayings like "sell in May".

Chuggers are back

I spoke too soon. Having stated how pleased I was that the chuggers who pollute the pavements outside my offices had seemingly given up the ghost, they are back with a vengeance.

This time it was the British Red Cross chuggers who were accosting people in their droves on the narrowest parts of the pavement in a busy and already overcrowded shopping street.

I saw one partially sighted person having to walk in the gutter thanks to one of these chuggers occupying the pavement.

Some town centres such as Shrewsbury have banned chuggers altogether and I thought the authorities here were doing something about it – such as limiting how close to stations they can stand. It seems not.

I don't quite understand why charities believe it is good for their reputation to employ these chuggers – which often earn bumper commissions for third party non-charitable firms – from getting people to sign on the dotted line.

What is worse about the whole practice is that many believe that the person they are speaking to is a volunteer. Not a bit of it – they are often handsomely paid for their spiel and the charity may only benefit from the direct debit after the first year.

What I suggest is that the charitable sector signs up to a code of conduct whereby only volunteers can do this sort of marketing and there is no money whatsoever going to a third party firm.

There should also be a strict limit on the number of days a high street can be targeted and should be confined to, say, one or two chuggers full stop. Maybe if the charitable sector did this I would start to use their spin doctor phrase of "face-to-face fundraisers" rather than chuggers – a mix of charity collector and mugger.

Strange world

I keep getting emails about the upcoming changes to rules governing credit unions.

Whereas I am supportive of the sector in the main I am still concerned at the professionalism of some of the unions, particularly as they are being given the opportunity to grow their lending books considerably.

However, I suppose against a backdrop of often exploitative payday lending, it is good to have an alternative source of funds for lower social economic groupings.

I find it a little odd, though, that one of the key ways that credit unions are going to be allowed to fund their new status is by allowing them to charge a much higher rate of interest on loans than they can at present.

It is a strange world that you increase access to credit by making it in effect more expensive.