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Technical
Info - 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..
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 |
|
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