TIMING THE MARKET

Many investors decide to invest when they see some positive market conditions. This is known as ‘timing the market’. Unfortunately even the experts cannot predict the correct timing. Markets are full of surprises and therefore it is the time that you are invested in the market that is more important. The upturn would come very suddenly and as long as you are in the market you will have all the benefits of the recovery.

POUND COST AVERAGING

Many investors have the fear that if any unforeseen event takes place such as another 9/11 or a credit crunch situation it may drag the market down. With this in mind many investors fear if a lump sum investment is carried out and the market falls further, it may take some time before their original investment is recovered and further more time may be required to show any growth.

The explanation of ‘pound cost averaging’ is that in order to eliminate the fear of further market fall and the value of the fund, you can invest a regular fixed monthly amount. This means you buy more units when the prices are low and fewer units when prices are high. The more volatile the market and thus the unit price, the more benefit will be gained by investing a fixed amount each month.

Pound cost averaging will not produce big profits as investing large lump sums when prices are at their low levels. But nobody rings a bell at the bottom of the market and history suggests that few people are fortunate enough to spot such opportunities and have the courage to take them.

The benefit of pound cost averaging is the opportunity of investing in stock markets over any period where you may be worried about the risk of bad timing, or that prices may fall after you invest.