What is pound cost averaging?
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In short: Investing a fixed amount at regular intervals — for example £200 a month into a fund — rather than a single lump sum. You buy more units when prices are low and fewer when prices are high, which smooths out market timing risk over time.
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Reviewed by Kaiser Khan
Pound cost averaging means committing the same cash amount on a set schedule — monthly direct debits into a Stocks & Shares ISA or workplace pension are common examples. When unit prices fall, your fixed contribution buys more shares; when prices rise, you buy fewer. Over many months, your average purchase price tends to sit between the highs and lows.
The approach suits people who earn regularly and want to build an investment habit without trying to time the market. It does not guarantee a profit — if markets only ever rise, investing a lump sum on day one would have done better — but it reduces the risk of deploying everything just before a fall.
In the UK, regular investing through a platform ISA often has lower or zero dealing fees compared with one-off trades. Combine it with diversified funds such as index trackers, and keep an emergency cash buffer separate so you are not forced to sell investments during a downturn.
Primary source: moneyhelper.org.uk/en/savings/investing
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