Definitions for "Pound cost averaging"
A disciplined investment technique where fixed amounts are invested over regular periods (typically monthly) to accumulate wealth in shares, unit trusts and investment trusts.
The term used to describe the effect of paying regular, fixed investments into volatile, unitised, investment funds, where, in a falling market, the investment will buy more units, and vice versa. The effect can be shown mathematically that over a given period, the average price paid for units will be below the average paid quoted price for units over the same period.
Investing on a regular basis can iron out stock market fluctuations and can help you to avoid investing all of your money when the market is at its peak. Saving regularly enables you to buy more shares when the market and prices are low and less when the market and prices are high. Over time the cost of your units will even out and it is likely that you will end up paying below average prices for your units. This is known as pound cost averaging.