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 and this is why there’s no time like the present when it comes to investing.

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 in the present 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’ and spreading out your investment risk and picking up potential bargains when the market or share price is down.

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.

Take this example

A novice investor called Ben has no savings but decides to make the effort and after three short months he has saved $500 to invest. It was so easy that Darren continues to save and invest $500 every three months over a year. During this time the share price rises and falls, which gives the overall result as follows:

As can be seen in the table, Ben benefits despite the upward and downward fluctuations in the market. The average cost of the units at the time of the last investment is $1.01 ($2,000 divided by 1977 units), yet the value of the share at that point in time is now $1.40.

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 our team if you would like to see how a regular investment strategy can benefit you.

We have office locations in Oran Park(Macarthur area) and Norwest business Park(Baulkham Hills side) or we are available for zoom meetings if required.

Moneysmart provides a great guide to investing and what to consider in your portfolio that can be found by clicking the following link:

extension://efaidnbmnnnibpcajpcglclefindmkaj/https://static.moneysmart.gov.au/files/publications/investing-between-the-flags.pdf

Note: past performance is not an indicator of future results.

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The information in this website and the links has been prepared for general information purposes only and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned on this website, consult a professional financial advisor or seek assistance to consider whether it is suitable and appropriate for you and your personal needs and circumstances.