Hi guys, I’d like to check my understanding of pound cost averaging as a small fry in this big new world of investing.
Onto my example to see if I have understood the theory. I’m only able to pay in £100 a month and I have 10 different company shares I want to buy into, so every month I buy £10 worth of each share.
My question is how to do this if one of the shares goes up the following month (month two) and I can’t afford it with my £10. Do I keep that £10 in my account as cash and wait to see if I can then afford it in month 3 when I have £20 which I can apportion to this share? Is that correctly applying this principle of pound cost averaging?
That’s exactly how you’d have to do it if you always place that 10 x £10 restriction on yourself. Another way of doing it would to be distribute the £100 over selected shares in your portfolio, depending on all the information you have. Price, news, results etc. But say you always could afford the £10 to each share option you would buy if it went down or up, that’s plain averaging.
You could also look at funds that hold the shares you are interested in and buy a £100 slice of the fund each month.
Apologies if you’ve already researched the next bit - Index funds e.g. a fund that replicates something like the S&P500 or the FTSE100 also automatically rebalance over time to remove the worst performing shares and replace them.
Hey Sleepy, thank you for the reply. I have so far only really invested in FTSE 100 and the S & P 500 through iShares but now think maybe I should have gone through Vanguard after doing some more reading . It’s a good learning curve
Also if one of your shares rises to more than the £10 you could put the money into one of your underperforming shares that month. I assume that you believe equally in all 10 companies.
. It’s a good learning curve 