If you have inherited or won a large sum of money or been given a bonus at work, then great. If not, one of the best ways to build up your capital is through regular saving. Whether you can afford pounds 20 or pounds 500 a month, by putting a set amount aside you can soon build up a tidy sum.
If you are planning to save for five years or more, you should consider stock market investment. While not without risk, historically this has proved considerably more profitable than putting money in a savings account.
The most practical way to invest in the stock market is through a pooled investment scheme such as a unit trust, investment trust or the new style open-ended investment company (Oeic). With these schemes your money is combined with that of other investors and used to buy a wide range of shares. This spreads your risk.
Figures from the Association of Unit Trust and Investment Funds (Autif) show that a pounds 50 a month investment in the average UK unit trust over the past five years would have grown to pounds 4,109. By contrast a savings account might have produced pounds 3,201.
Over time the difference becomes more marked. For example, over 10 years the unit trust would have grown to pounds 11,010 and the savings account to just pounds 7,365. Over 15 years the unit trust would have grown to pounds 27,383, the savings account to just pounds 13,432.
Don't be put off the stock market because you can only afford to save a small amount. As Emma Weiss, of Autif, says: "Regular savings schemes make equity investment accessible to anyone with pounds 20 or more a month to invest."
There are more than 2,000 unit trust and investment trusts to choose from. Many run monthly savings schemes and often you can invest just as cheaply via a tax-free personal equity plan (PEP).
Usually, you set up a direct debit into the chosen savings schemes and can change your contribution levels whenever you want.
As well as enabling you to build up a lump sum, a regular savings plan can help reduce the risk of getting your timing wrong when investing in the stock market.
By investing on a regular basis there is no danger of ploughing in all your money when share prices are at a peak. If and when they fall, this will work to your advantage as you will be able to buy more for the same money.
Having said that, if you do have a lump sum to invest in the UK stock market, it usually makes sense to invest the money in one go.
But if you are investing in a more volatile fund, such as one investing in overseas markets where there are large currency fluctuations or emerging markets that can go up and down like a yo-yo, the phased investment approach can make more sense.
q Autif, the unit trust managers' association, has a free fact sheet with further details on unit trust regular savings schemes. Copies are available on 0181 207 1361. For details on investment trust savings schemes, contact the Association of Investment Trusts on 0171-588 5347 for a free copy of its fact sheet on regular savings plans.