Time to start averaging down

In the Guide to Dividend Investing, we dedicate a whole chapter to the benefits of pound-cost averaging. In general, I believe averaging-down is an important tool when building up a share portfolio if (regular) cash is available. Let’s say you’ve decided to invest in a specific company. Rather than purchasing the shares at any one time using the entire amount, you decide to regularly purchase shares on a certain day, each month, for a number of months.

You may ask yourself what the benefit is of such a strategy. For one, it very much removes much of the emotion from the whole investing process. Once set up, it happens automatically. Remember human nature is often the worst enemy when investing. Over any period of time a company’s share price is likely to vary substantially. Suppose you set up your own monthly purchasing program. You will buy fewer shares when the share price is high, but when the share price is lower, you will buy more shares.

Source: Stockopedia

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