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Cost Averaging

“Spreading and minimising risk”

Cost Averaging is a method of accumulating assets by investing a fixed amount of money in securities at set intervals. The investor buys more shares/units when the price is low and fewer shares/units when the price is high; the overall cost is lower than it would be if a constant number of shares/units were bought at set intervals.

This method can be applied to investments on a regular basis, or by investing a single lump sum investment and slowly feeding it from low risk to higher risk fund/s, known as Phased Investment Switching.

The below graph is an example only and it is showing investments over a period of 40 intervals. The red graph shows an ideal investment constantly growing. The blue and the green represent fluctuating investments.

graph2

Investment
Interval

– Invest $1,000 over 40 Months
Cost 1
Cost 2
Cost 3
Units Purchased
2,847.74
2,930.27
3,429.30
Total Cost
$40,000.00
$40,000.00
$40,000.00
Market Value
$56,954.80
$58,605.40
$68,587.40
$ Growth
$16,954.80
$18,606.40
$28,587.40
% Growth
42.39
46.51
71.41