How rand cost averaging can help build your savings
Rand cost averaging helps you take advantage of market fluctuations without the risk of timing the market. Here's a quick breakdown of what rand cost averaging is and how it works.
What is rand cost averaging?
Rand cost averaging is when you invest smaller, regular amounts over time so that you can capture different prices at different periods. This increases your chances of buying shares or units when prices are low, or not buying too much when prices are high.
There are two ways to do it:
- On a recurring investment: Recurring investments benefit from rand cost averaging naturally because your contribution is deducted from your bank account every month.
- On a lump sum: You may have an option for rand cost averaging if you make a lump sum contribution to your investment company or asset manager and let them 'phase in' appropriate amounts from their end, over a selected period. Chat to your financial adviser about this.
The perks of rand cost averaging
There are good reasons why rand cost averaging is useful.
- It's easy to implement - as simple as either setting up a monthly debit order or speaking to your financial adviser about investment options on a lump sum.
- By investing regularly over a period of time, you iron out the risk of price volatility. This makes it a good strategy for keeping the volatility of your investment low.
- Rand cost averaging reinforces positive investor behaviour by encouraging you to wait out any dips in the market and not to make emotional financial decisions.
- On a recurring investment, it's a great way to get into the financial habit of allocating a fixed amount of money in your budget every month for investing.
A recurring investment can also help you start investing without feeling the pressure of needing to build a large lump sum first. So if you want to build up your investments without using too much capital, this could be the strategy for you.
Of course, the concept behind rand cost averaging is not limited to rands: you can do it with any currency you have, so there's no excuse to put off investing!
Along with rand cost averaging, there are plenty of ways to invest wisely. You can research the kinds of investment funds that are available to you or try investing for value or growth. Whatever you decide to do, first consult with a financial adviser so you can be sure that you're making balanced, rational money choices that will serve you well in the future.
This document is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser. Discovery Life Investment Services Pty (Ltd): Registration number 2007/005969/07, branded as Discovery Invest, is an authorised financial services provider. All life assurance products are underwritten by Discovery Life Ltd. Registration number: 1966/003901/06, a licensed life Insurer, an authorised financial service provider and registered credit provider, NCR registration number NCRCP3555. All boosts are offered through the insurer, Discovery Life Limited. The insurer reserves the right to review and change the qualifying requirements for boosts at any time. Product rules, terms and conditions apply.
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