What is Cost- Averaging?

Aside from its complicated term, it actually is a very simple investment method. To cost-average, you simply have to invest the same amount, on a regular schedule, in the same kind of investment – usually on a monthly schedule in mutual funds. That way, you eliminate the market fluctuation by buying more shares when the market are down, and fewer when they are up. You increase your portfolio value, while reducing risk thanks to the averaging of its volatility.

Who is it for?

This method is great for passive investors. You just have to pick a few funds with different strategies, allocate a specific amount each month, there you go! You can check that your portfolio strategy is still working as you want it to every 4 to 6 months if you want – or you can just sit back & enjoy the ride. The only real drawback is that you you need to invest on a regular basis – and have the guts to stick to your strategy even when the markets are down.

If you want to read a more thorough analysis of Cost Averaging, I highly recommend the following one: Sigma Investing on Cost Averaging