Pound Cost Averaging

If you set up a regular savings plan investing in one or more markets that have the potential to rise and fall over time (typically shares based investments) you may benefit from a phenomenon known as Pound Cost Averaging.
When markets are high, or perhaps arguably at any time when there is the chance of a fall (perhaps anytime?) care should be taken when investing lump sums.
If you invest £1,000 and it falls by 20% (so by £200 to £800) you now need a rise of 25% (£200, ie 25% of £800) to get back to £1,000.

However if saving regularly a market fall in the early years of a share based investment can actually be beneficial over the longer term!

To see why, please see the table below.

This shows how it can be more effective to buy when a stockmarket is fluctuating in value than by investing in times of sustained growth.

Of course no-one knows exactly when markets will rise or fall so you may wish to consider a mix of lump sum and regular investments if you have the ability.

But if you do not have a lump sum and are starting to invest in the markets for the first time, you can see how fluctuations are nothing to be concerned about over time thanks to Pound Cost Averaging