Buying shares is a nerve wracking experience for most, especially if you’re new to investing on the stock market.
But what if there was a way of investing that reduced your risks, took your emotions out of the equation and worked in all market conditions?
It’s called ‘rand cost averaging’
And, according to Warren Jeffery’s Accelerated Investor Programme
, rand cost averaging is just the investment strategy for you!
What is rand cost averaging?
With rand cost averaging, once you find a share you want to invest in, you buy fixed amounts of the share at regular intervals.
For example, you’d buy R5,000 of Sasol shares at the beginning of every month.
By drip feeding your funds into the share, rand cost averaging eradicates any concerns you might have over the specific price you’d like to buy at.
This investment strategy eliminates any emotional reaction you might have to short-term fluctuations in the share price.
Rand cost averaging also removes some of the risk associated with timing the market.
An investment strategy that takes a long-term outlook
Rand cost averaging forces you to establish a long-term view on the share you choose.
For instance, you buy some shares at the start of January.
A month later, at the start of February, the price is slightly down. But this is good news because your February investment amount will buy you even more shares in your chosen company.
But before you jump in, do your sums…
With rand cost averaging, you need to consider the impact of trading costs before going any further. Your regular investment amount needs to be big enough to ensure your dealing costs as a percentage of capital aren’t too high.
If you’re looking at less than R5,000 per instalment, a unit trust might be more suited to you. Average fees are around 5% and minimum investment amounts start from about R200.