Ploughing thousands of pounds into the stock market on a single day can seem nerve wracking, particularly at a time when share prices are volatile. It is a worry to think that you might invest your £7,200 ISA allowance in a single fund one day, only to see the value of your investment fall if the market takes a tumble and impacts that one fund.

However, while there are no guarantees that markets will continue to produce strong returns, history does show that long term investors are rewarded for sticking with stock markets through their ups and downs. If, for example, you had invested £1,000 in the UK stock market just before the 1987 stock market crash, you would have seen the value of your investment fall 28% during the following two weeks. The stock market then took two years to recover its previous highs and if you had sold at any point during this time, you would have lost money. But, if you had held on until today, your investment would have gone up 284% in value.*

Beyond holding your nerve in volatile market times, there is another way of smoothing out the ups and downs and that is to drip feed your money through regular savings rather than putting it all in at once. Investing a lump sum makes the most sense when you are prepared to invest for the long term and are confident on the outlook for share prices. If, however, you are nervous of committing a lump sum to the stock market at one point in time, you might want to consider regular savings. Via this type of scheme you might only have £2,000 invested in a fund when the market falls rather than the full £7,200 lump sum and the continuing investments would then buy into the fund at a cheaper rate. It does of course also mean the same in reverse, meaning if the market soars you only have £2,000 exposed rather than the full lump sum.

Most fund managers, including Jupiter, offer investors the ability to invest monthly. At Jupiter, the minimum amount you can start a regular savings scheme with is £50. The main benefit of regular saving is called 'pound cost averaging'. This technical term actually covers a simple concept - ironing out stock market fluctuations. If you are saving regularly each month, you will buy more units in a fund when share prices are low and fewer units when prices are high. So, over time the cost of your units will be evened out and it is possible that you would end up paying below average prices for your units than if you had invested a lump sum.

If, for example, you invest £1,000 in a fund at a price of 100p per unit, you will get 1,000 units. However, if you invest the same amount in £100 chunks over 10 months, you will pay a different price each month. You might, for example pay 100p for the first month, 95p per unit in month two and 108p for the final month. So, your £1,000 could have bought you a total of 1,059.45 units.

However, pound cost averaging may not be right for all investors. While you are free to stop your contributions at any time, regular savings are really only able to pay off if you commit to invest over the medium term and ignore short term fluctuations in share prices.

* Source: Bloomberg