Features » Finance and Money
LEADER MONEY MATTERS
Staff Reporter / 2010-07-02 13:35:58
Find an ally in volatility
As I write this article the FTSE 100 stands at 4846 somewhat short of the 2010 high of 5832. We all know how the markets can go up and down especially in these turbulent financial times. In volatile markets, it is quite natural for investors to worry about price fluctuations on their investments. However, it is possible to make market volatility work to an investor’s advantage.
Unit Cost Averaging – a complex term for a simple principle
Price fluctuations, quite simply, can allow investors to maximise their purchasing power. Regular investing can help to smooth out market fluctuations and means that the average price paid per unit can be lower than the average unit price for that period. This is because more units are bought when prices are low and fewer when prices are high.
Clearly this strategy cannot guarantee a profit or prevent a loss, but it does reduce the effects of market fluctuations over the medium term. It does this by not seeking to time the market ( buying when the price is low and selling when the price is high; something incidentally even the professional fund managers often fail to achieve ) rather you invest the same amount of money at, say quarterly intervals.
Key Points
• In volatile markets regular investing can allow more units to be bought due to the lower average price per unit.
• Regular investing can smooth out fluctuations and produce positive returns in volatile markets.
• There is no need to try and time the market – regular investing lessens the worry of a potential loss if a lump sum is invested just before prices fall.
• If you have a lump sum you can ‘drip feed’ into an investment on a regular basis rather than put the full amount in at the outset.
• In theory the perfect investment strategy would be to leave the markets when prices are high and re-invest when prices are low. But in practice this seldom works as market falls and rises are notoriously difficult to predict.
Stay Calm
Overall, in these volatile times many experts agree that if you are investing for the long term it is ‘time in the market, not timing the market’ that can deliver superior returns. While there are no guarantees, investors are better off staying calm, resisting temptation to leave the markets and to sit out the fluctuations.
For a free confidential consultation on this or other types of investment opportunities call Graham Dixon on 965 791 222 or email graham@beneficialspain.com.
Tags: Finance, Market
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