What is Pound-Cost Averaging? A simple definition
Thinking of hassle-free long-term investment? Find out how to regularly invest using Pound-Cost Averaging.
So you want to invest regularly in the easiest way possible…
We’ve all been there before. You read about a huge stock price increase in a company and wish you had invested earlier. Often, we hold off because we don’t have enough of a lump sum to start with. We then become worried that we’re investing at a high point, and want to wait until the market balances out. But we all know it’s tough to predict where exactly the market will go in the future. So if you’ve picked a great stock or fund, how can you spread the risk?
The investment technique of Pound-Cost Averaging allows you to cut risk by spreading an investment over a period of time. Say you want to buy Amazon shares over the next year. To carry out Pound-Cost Averaging, you might purchase £100 in shares every month, sometimes buying at a lower price and sometimes buying higher. This way you end up spreading the risk of prices that you buy at, meaning you buy closer to the real average price. This technique is great if you don’t have a lump sum to invest immediately.
Benjamin Graham, the investor who inspired Warren Buffet’s investment strategy, said:
“Such a policy will pay off ultimately, regardless of when it began, provided that it is adhered to conscientiously and courageously under all intervening conditions “ – Benjamin Graham
Simpler Investing with Wombat
Let’s go back to our initial scenario, staring at that stock price increase. On traditional platforms in the past, small-scale investors typically held off from investing because they didn’t have enough of a lump sum to start with. Many investment platforms charge huge fees for a single transaction so it’s hard to get to save up to that point. If only you could simply put a small amount of money aside each month without the huge fees, so that you could invest and build towards a greater investment pile in the future using a Pound-Cost average strategy. With Wombat, you can.
Wombat Funds and Shares
Start with as little as £10. When picking for your investment strategy, Wombat has hand-picked different stocks and shares and separated them by theme, making it easier for you to pick and choose where you want to invest your money.