"Make it your mission to understand & invest wisely. Everyone has the potential to succeed in their search for true wealth & happiness & everyone can be successful in their pursuit of financial freedom." Contrarian Invest

Saturday, 16 November 2013

The advantage of Rand Cost Averaging

Time IN the market, rather than trying to time the market, is key. Stock markets are very difficult to predict, so if you are constantly buying and selling, you can expose yourself to greater risk.

Here's a wonderful strategy that i personally implement. Its called Rand cost averaging. How it works is you budget a fixed amount of money to invest at regular intervals. This way you take advantage of market fluctuations – without worrying about timing your transactions. By implementing this strategy, I buy more units when prices are low and fewer when prices are high, generally resulting in a lower average cost per unit. It's one of the reasons i do not panic sell when prices fall, infact i get happier when they do. As you can see from the table below (Recurring investment in a falling market) the fund price only has to go from R7 to R13.53 in order for me to break even instead of it reaching a fixed purchase price of R24.

I have a very disciplined approach to investing. I following a long term approach by remaining invested in the markets because i know the market goes through cycles which will impact my performance & ultimately my investment returns. It’s not when, but if you invest that counts so don't let falling prices put you off investing when infact that is the best time to be buying. Anytime is a good time to start investing. All you need to do is stay committed and patient and you will reap the financial rewards.

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