Over the last 100 years global share markets have experienced many major set-backs, including the Great Depression of the 1930s, several wars, the ‘crash of 1987’ then the Global Financial Crisis twenty years later. But for every low, a recovery has followed – they just take time.
What stops most people from investing in (or returning to) the share market is not knowing when to jump in. Although nobody knows exactly when a market or a particular share price has found its base price, we can employ a strategy to remove this speculation and focus on a longer term investment plan.
Averaging into the share market
A regular savings plan involves putting aside a small amount of funds on a regular basis to make investments of a set amount at regular intervals. This is a suitable strategy for people who don’t have a large sum of money to invest immediately but are able to build up an investment portfolio over time. The other advantage of investing this way is that it removes the decision-making process of trying to pick the cheapest time to invest (which is impossible). Instead, investing regularly in the market applies the concept of ‘dollar cost averaging’.
The aim of dollar cost averaging is that the average cost of the investments will always be below the average value of the investments during the period in question.
Furthermore, dollar cost averaging can act as a form of diversification, enabling investors to stagger their entry into the market instead of taking the risk associated with making a large single purchase.
Talk to your financial planner if you would like to take advantage of building your wealth with dollar cost averaging.
Note: past performance is not an indicator of future results.