Investors with a regular savings plan can do better in times of market instability than those depositing lump sums, Fidelity says.
It says the ‘pound cost averaging’ process – investing regular, monthly sums into share-based funds – is a “tried and tested” method of dealing with equity and bond market volatility.
“It enables savers to take advantage of falls in stock prices through a disciplined process of buying more shares at lower values,” Fidelity says.
Fidelity International UK managing director Richard Wastcoat says investors worried about market volatility could consider a regular savings plan.
“When markets fall, understandably investors lose confidence and either stop investing new money or redeem their holdings,” he says.
“By investing a consistent amount at regular intervals, investors can gradually ‘drip-feed’ into the market regardless of the price on any given day.
“This strategy is known as pound cost averaging and will help smooth out the effect of market changes on the value of investments.”
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Have Your Say:
"You might want to ask Fidelity what happens when the market works as follows:
Month 1 price 100
Month 2 price 105
Month 3 price 110
Month 4 price 115
Month 5 price 120
Month 6 price 125
Month 7 price 130
Month 8 price 120
Month 9 price 115
Month 10 price 110
Month 11 price 105
Month 12 price 100
Pound cost averaging works both ways, In the case above the lump sum investor would have not lost nor made money - the regular premium Saver would have lost. Given that markets tend to move up over time there is a better case for immediate investment."
John Blackmore, principal, Long ViewIFAonline
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