What is ‘pound cost averaging’?
- In a nutshell, this means investing funds on a regular (usually monthly) basis rather than in one lump sum
- It minimises the risk from volatile markets and avoids having to try and second guess the way the market will move
- It also averages the cost of buying an investment
For example:
In a volatile or depressed market, pound cost averaging really comes into its own. If we compare how investing £100 a month would have fared (compared to investing all £1200 in one go) we can clearly see the benefits:
|
Month |
Price |
No. of Units |
No. of Units |
|---|---|---|---|
|
January |
1.11 |
90.1 |
1081 |
|
February |
1.11 |
90.1 |
0 |
|
March |
1.10 |
90.1 |
0 |
|
April |
1.14 |
87.7 |
0 |
|
May |
1.12 |
89.3 |
0 |
|
June |
1.10 |
90.1 |
0 |
|
July |
1.02 |
98.04 |
0 |
|
August |
0.91 |
109.9 |
0 |
|
September |
0.92 |
108.7 |
0 |
|
October |
0.82 |
122.0 |
0 |
|
November |
0.86 |
116.3 |
0 |
|
December |
0.91 |
109.9 |
0 |
|
Total Units |
1202.24 |
1081 |
|
|
End Value |
1094.04 |
983.71 |
So, investing regularly in volatile and falling markets results in buying more shares and at a cheaper price.
If you have investments or are thinking about investing but worried about media reporting on volatile markets, now is a good time to talk to an Independent Financial Advisor who can discuss the options available to you according to your circumstances and ‘risk levels’. For more information please call 01273 208813 or email [email protected].
This article The benefits of pound cost averaging in a volatile or depressed market was originally published on Friday, February 12, 2016 – 11:44
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