Investment Strategies - by R Ambrose

Dollar cost and Value Averaging

Dollar cost averaging is where an investor would invest a set amount in the stock market at regular intervals. For instance, he may put £200 in each month into a mutual fund. This helps smooth out the fluctuations of the stock market as the investor isn't putting a lump sum in, which would be good if the market went up but bad if the market dropped.

Value averaging is similar to dollar cost averaging. Imagine the investor put £100 into the stock market in month 1. If at the start of month 2 the value of his investment had dropped to £90, he would invest £110. If it had gone up to £110, he would only invest £90.

This method results in the investor buying more shares when prices are down and investing less when prices are up.

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