The Financial Group
We simplify all those essential financial decisions
THE EDUCATION SECTION Pound Cost Averaging ____________________________ Key points We all know that markets can go up and down. These movements can, at times, be quite extreme. Understandably   this   can   deter   some   people   from   investing.   However,   making   regular   payments   is   an   approach that   can   take   away   some   of   the   worry   &   can   also   make   the   inevitable   ups   and   downs   work   for   you!   Here   we explain how what is known as ‘pound-cost averaging’ works! What is it? ‘Pound-cost   averaging’   might   sound   complicated,   but   it   is   really   quite   a   simple   concept.   It   is   based   on   the principle that when markets are low, you get more for your money & when markets are high, you get less. It   is   most   often   used   with   equity-based   investments   rather   than   bonds   or   fixed   income   assets   that   tend   to   be   less volatile. The   concept   can   apply   to   regular   monthly   investing   as   well   as   spreading   the   investment   of   a   large   lump   sum investment over a period of time. How does it work? The   simple   example   below   illustrates   how   this   notion   can   work   for   you.   As   you   can   see,   despite   the   price   being the   same   at   the   end   of   the   period   as   at   the   beginning,   pound-cost   averaging   means   that   the   investment   is actually   showing   a   profit!   Please   be   aware   this   is   only   an   example   of   what   you   might   get   back   and   is   not guaranteed. Time period Investment      Unit price Units purchased 1   £100 £1.00 100.0 2   £100 £0.90 111.1 3   £100 £0.85 117.6 4   £100 £0.95 105.3 5   £100 £1.10   90.9 6   £100 £1.00 100.0                            Total   £600 624.9 Value after 6 periods = £624.90 (624.90 units x unit price of £1.00) Benefits   Greater peace-of-mind Drip   feeding   money   into   the   market   can   take   away   some   of   the   worry   of   investing.   If   you   commit   a   large   lump sum,   there   is   always   the   concern   that   there   could   be   a   large   fall   in   prices   just   around   the   corner.   However, making   regular   payments   means   you   are   staggering   your   investment   over   time.   If   the   market   does   fall,   you   will have   only   invested   some   of   your   savings.   In   addition,   your   future   payments   could   take   advantage   of   the   cheaper prices that may be on offer. Providing a smoother ride Investing   regularly   helps   smooth   your   return.   This   is   because   you   are   contributing   to   your   savings   throughout   all market conditions. Key points of pound cost averaging It can be a more reassuring way to invest It helps smooth your return It takes the worry out of investment decision-making You can benefit from (stock) market ups and downs ____________________________ As always, p lease do not hesitate to contact us  if you would like further details or information.