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Is now the right time to dip your pinky toe in shares?

by , 16 August 2013

A friend of mine used to invest in the stock market.

He told me he lost a chunk of money in the financial crash of 2008 and ever since, has been too scared to climb back in.

And by pulling his money out during this time, he missed out on the massive upswing the market has made since.

But now he's in a bit of a pickle. If he gets back into stocks today, after already missing the great returns, he'll risk being in for another crash.

However, who's to say the market will crash again anytime soon? And even if it did, should you be pulling out of it?

What should any budding investor do?

Don’t try and time the market
 
Knowing when to climb into the market is pretty much impossible… 
 
Sometimes our market swings down 25% in a year and other times it goes right back up by almost the same amount… But you won’t know when these swings will happen!
 
One things for sure though, over the long haul, our market has given us returns of about 15% on average!
 
So to avoid the short-term knocks you’ll take from the markets, even during a crash, you need to stick it out because in the long-term it’ll pay off!
 
And that’s why you need to make use of this simple strategy…
 
An investment strategy that works regardless of market conditions
 
By using a simple system called rand cost averaging, you’ll be able to take advantage of a long-term view on the shares you choose.
 
Here’s how it works…
You invest a set amount on the same day in one or more investments each month. 
 
As a result, you’ll buy more units in a particular investment when prices are low and less when the unit price is high. 
 
By doing this, your average unit cost will smooth out the difference between high and low unit prices over time.
 
Here’s what I mean:
 
Let's say, you decided to use this strategy and invest R100 in ABC shares each month for three months.
 
In February the share is selling for R10 a share, so you get 10 shares for your money.
 
In March the share price drops to R5, so you get 20 shares for your R100.
 
Then, in April, the share price shoots up to R20 a share, so you only get 5 shares for R100.



So, to work out the average share cost you paid over the three months, you simply add the total number shares you bought 
 
10 shares in February, plus 20 shares in March, plus 5 shares in April gives you 35 shares in total.
 
Altogether you paid R300 for your 35 shares.
 
Now, take the R300 you spent and divide it by your 35 shares, to get the average price you paid per share. 
 
In our example this works out to R8.57.
 
That means, on average you paid R8.57 for each share you own.
 
That's a 26% saving on the average actual share price for the same period!
 
(R10.00 + R5.00 + R20.00 divided by 3 gives you an average trading price of R11.66).
 
By using this rand cost averaging strategy you’ll eliminate any concerns you might have of buying the share at the right time!
 
But it goes further than that… This strategy will remove any emotional reaction you might have to short-term fluctuations in the share price…
 
If you’re unsure of what shares to buy, take a look at my new report, “How to pick your first winning share.” You’ll easily be able to use this strategy and grow your wealth for the long-term by picking the best shares!
 
Thrive in your possibilities,
 



Is now the right time to dip your pinky toe in shares?
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