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- W2275563708 abstract "When investing in shares or funds, one of the natural concerns of any investor is whether it is the ‘right time’ to buy the investment and what measures can be taken to mitigate the risk of buying an investment when the price is very high. Pound-cost averaging (known as ‘dollar-cost averaging’ in the US’) can be defined as planned periodic purchases of equal monetary value of an investment. This contrasts to making a purchase all-at-once at a single point in time. The rationale for this approach is to mitigate the worry of buying the stock at the “wrong price” in retrospect. Some savings strategies, such as Defined Contribution pension schemes embed pound cost averaging as payroll contributions are periodically transferred into a pension scheme, typically on a monthly basis. Similarly, investment providers offering access to mutual funds for non-advised clients also encourage ‘regular savings plans’ meaning pound cost averaging is the norm for many retail investors.This paper revisits the conventional arguments in favour of pound-cost averaging and offers new insights on its benefits both from an outcome perspective as well as a behavioural perspective. While most research on historical data shows that the opportunity cost of staying out of the market typically outweigh the potential benefits of pound-cost averaging, we find pound-cost averaging can in-fact be profitable when considering longer holding periods. When considering shorter time horizons, the loss-buffering properties of pound-cost averaging can deliver a better subjective investment experience and therefore, from a behavioural perspective, is arguably a superior investment strategy. Furthermore, pound-cost averaging can help overcome poor behavioural tendencies such as market timing and attention effect which affect buying decisions and subsequently lead to suboptimal investment outcomes." @default.
- W2275563708 created "2016-06-24" @default.
- W2275563708 creator A5053781965 @default.
- W2275563708 date "2015-03-12" @default.
- W2275563708 modified "2023-09-25" @default.
- W2275563708 title "Exploring the Benefits of Pound-Cost Averaging" @default.
- W2275563708 hasPublicationYear "2015" @default.
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