Pound cost averaging is a strategy that is often used by investors to help reduce the impact of market volatility on their investments. This strategy involves investing a fixed amount of money at regular intervals, regardless of the current market conditions.
One of the main benefits of pound cost averaging is that it helps to reduce the risk of timing the market. When investors try to time the market by buying and selling stocks at the right time, they can often make costly mistakes. By using pound cost averaging, investors can avoid the temptation to try to time the market and instead focus on consistently contributing to their investment or pension over time.
Another benefit of pound cost averaging is that it can help to increase the potential returns on an investment over time. When the market is low, investors can purchase more shares at a lower price, and when the market is high, they will purchase fewer shares at a higher price. Over time, this can lead to an average cost per share that is lower than the overall market price, potentially resulting in a higher return on investment.
Pound cost averaging can also help investors to overcome the psychological barriers to investing. It can be difficult for some people to invest a large lump sum of money, particularly when the market is uncertain. By using pound cost averaging, investors can make smaller, regular contributions, which can make it easier for them to start investing and stay invested over time.
In conclusion, pound cost averaging is a simple but effective strategy that can help self-employed business owners and other investors to achieve their long-term financial goals. By making regular contributions to their investment or pension, regardless of market conditions, they can reduce their risk and increase their potential returns over time. By considering pound cost averaging as an option, they can have a better control on their investment and have a better understanding of the market.
Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.